Attached files

file filename
EX-32.2 - EXHIBIT 32.2 - Prestige Brands Holdings, Inc.exhibit322certificationofc.htm
EX-32.1 - EXHIBIT 32.1 - Prestige Brands Holdings, Inc.exhibit321certificationofe.htm
EX-31.2 - EXHIBIT 31.2 - Prestige Brands Holdings, Inc.exhibit312certification_sa.htm
EX-31.1 - EXHIBIT 31.1 - Prestige Brands Holdings, Inc.exhibit311certification_lo.htm
EX-23.1 - EXHIBIT 23.1 - Prestige Brands Holdings, Inc.exhibit231pbhconsentfy18.htm
EX-21.1 - EXHIBIT 21.1 - Prestige Brands Holdings, Inc.exhibit211directindirectsu.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2018

OR

 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______

Commission File Number: 001-32433

PRESTIGE BRANDS HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
pbhsmalla01a05.jpg
20-1297589
(I.R.S. Employer Identification No.)
 
660 White Plains Road
Tarrytown, New York 10591
(Address of principal executive offices) (Zip Code)


 
Securities registered pursuant to Section 12(b) of the Act:
(914) 524-6800
(Registrant's telephone number, including area code)
 
Title of each class:
 
Name of each exchange on which registered:
Common Stock, par value $0.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:  None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.           Yes x No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.           Yes o No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
 
 
Accelerated filer
o
Non-accelerated filer
o
 
(Do not check if a smaller reporting company)
 
Smaller reporting company
o
 
 
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No x
The aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter ended September 30, 2017 was $2,651.0 million.
As of May 4, 2018, the Registrant had 53,073,534 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement for the 2018 Annual Meeting of Stockholders (the “2018 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described herein.




TABLE OF CONTENTS
 
 
 
 
 
Page
Part I
 
 
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. 
Mine Safety Disclosures
 
 
 
Part II
 
 
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
 
 
Part III
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
 
 
 
Part IV
 
 
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
 
 
 
 
TRADEMARKS AND TRADENAMES
 
 
Trademarks and tradenames used in this Annual Report on Form 10-K are the property of Prestige Brands Holdings, Inc. or its subsidiaries, as the case may be.  We have italicized our trademarks or tradenames when they appear in this Annual Report on Form 10-K.
 




Part I.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), including, without limitation, information within Management’s Discussion and Analysis of Financial Condition and Results of Operations.  The following cautionary statements are being made pursuant to the provisions of the PSLRA and with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA.  

Forward-looking statements speak only as of the date of this Annual Report on Form 10-K.  Except as required under federal securities laws and the rules and regulations of the SEC, we do not intend to update any forward-looking statements to reflect events or circumstances arising after the date of this Annual Report on Form 10-K, whether as a result of new information, future events or otherwise.  As a result of the risks and uncertainties described below, readers are cautioned not to place undue reliance on forward-looking statements included in this Annual Report on Form 10-K or that may be made elsewhere from time to time by, or on behalf of, us.  All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

These forward-looking statements generally can be identified by the use of words or phrases such as "believe," "anticipate," "expect," "estimate," "plan," "project," "intend," "strategy," "goal," "objective," "future," "seek," "may," "might," "should," "would," "will," "will be," or other similar words and phrases.  Forward-looking statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including, without limitation:

The high level of competition in our industry and markets;
Our inability to increase organic growth via new product introductions, line extensions, increased spending on advertising and promotional support, and other new sales and marketing strategies;
Our dependence on a limited number of customers for a large portion of our sales;
Our inability to successfully identify, negotiate, complete and integrate suitable acquisition candidates and to obtain necessary financing;
Our inability to invest successfully in research and development to develop new products;
Changes in inventory management practices by retailers;
Our inability to grow our international sales;
General economic conditions affecting sales of our products and their respective markets;
Economic factors, such as increases in interest rates and currency exchange rate fluctuations;
Business, regulatory and other conditions affecting retailers;
Changing consumer trends, additional store brand or branded competition or other pricing pressures which may cause us to lower our prices;
Our dependence on third-party manufacturers to produce many of the products we sell;
Our dependence on a third party logistics provider to distribute our products to customers;
Price increases for raw materials, labor, energy and transportation costs, and for other input costs;
Disruptions in our distribution center or manufacturing facility;
Acquisitions, dispositions or other strategic transactions diverting managerial resources, the incurrence of additional liabilities or problems associated with integration of those businesses and facilities;
Actions of government agencies in connection with our products, advertising or regulatory matters governing our industry;
Product liability claims, product recalls and related negative publicity;
Our inability to protect our intellectual property rights;
Our dependence on third parties for intellectual property relating to some of the products we sell;
Our inability to protect our internal information technology systems;
Our dependence on third party information technology service providers and their ability to protect against security threats and disruptions;
Our assets being comprised virtually entirely of goodwill and intangibles and possible changes in their value based on adverse operating results;
Our dependence on key personnel;
Shortages of supply of sourced goods or interruptions in the distribution or manufacturing of our products;
The costs associated with any claims in litigation or arbitration and any adverse judgments rendered in such litigation or arbitration;
Our level of indebtedness and possible inability to service our debt;
Our inability to obtain additional financing;
The restrictions imposed by our financing agreements on our operations; and
Changes in federal and state tax laws, including the recently enacted Tax Cuts and Jobs Act.

1





For more information, see “Risk Factors” contained in Part I, Item 1A of this Annual Report on Form 10-K.
 
ITEM 1. BUSINESS
                   
Overview

Unless otherwise indicated by the context, all references in this Annual Report on Form 10-K to “we,” “us,” “our,” the “Company” or “Prestige” refer to Prestige Brands Holdings, Inc. and our subsidiaries.  Similarly, reference to a year (e.g., “2018”) refers to our fiscal year ended March 31 of that year.

We are engaged in the development, manufacturing, marketing, sales and distribution of well-recognized, brand name, over-the-counter (“OTC”) healthcare and household cleaning products to mass merchandisers and drug, food, dollar, convenience, and club stores in North America (the United States and Canada) and in Australia and certain other international markets.  We use the strength of our brands, our established retail distribution network, a low-cost operating model and our experienced management team to our competitive advantage.  Our ultimate success is dependent on several factors, including our ability to:

Develop and execute effective sales, advertising and marketing programs;

Integrate acquired brands;

Establish and maintain third party manufacturing and distribution to fulfill customer demands;

Develop innovative new products;

Respond to the technological advances and product introductions of our competitors; and

Continue to grow our presence in the United States and international markets.

We conduct our operations in three reportable segments: North American OTC Healthcare, International OTC Healthcare, and Household Cleaning. Our business, business model, competitive strengths and growth strategy face various risks that are described in "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K.





2



Major Brands

Our major brands, set forth in the table below, have strong levels of consumer awareness and retail distribution across all major channels.  These brands accounted for approximately 83.0%, 79.4%, and 75.1% of our revenues for 2018, 2017, and 2016, respectively, during the period the respective brands were owned by us.

Major Brands
 
Market
Position
 
Market Segment(2)
North American and International OTC Healthcare:
 
 
 
 
BC®/Goody's® (1)
 
#1
 
Analgesic Powders
Beano® (1)
 
#1
 
Gas Prevention
Boudreaux's Butt Paste (1)
 
#4
 
Baby Ointments
Chloraseptic® (1)
 
#1
 
Sore Throat Liquids/Lozenges
Clear Eyes® (1)
 
#1
 
Eye Allergy/Redness Relief
Compound W® (1)
 
#1
 
Wart Removal
Debrox® (1)
 
#1
 
Ear Wax Removal
DenTek® (1)
 
#2
 
PEG Oral Care
Dramamine® (1)
 
#1
 
Motion Sickness Relief
Efferdent® (1)
 
#2
 
Denture Cleanser Tablets
Fess® (4)
 
#1
 
Nasal Saline Spray
Fleet (1)
 
#1
 
Adult Enemas/Suppositories
Gaviscon® (3)
 
#1
 
Upset Stomach Remedies
Hydralyte® (4)
 
#1
 
Oral Rehydration
Luden's® (1)
 
#3
 
Cough Drops
Monistat® (1)
 
#1
 
Vaginal Anti-Fungal
Nix® (1)
 
#1
 
Lice/Parasite Treatments
Pedia-Lax (1)
 
#1
 
Pediatric Laxatives
Summer's Eve (1)
 
 
#1
 
Feminine Hygiene
 
 
 
 
 
Household Cleaning:
 
 
 
 
Comet® (1)
 
#1
 
Abrasive Tub and Tile Cleaners
(1)
We have prepared the information included in this Annual Report on Form 10-K with regard to the market position for our brands based in part on data generated by Information Resources, Inc., an independent market research firm (“IRI”), for the 52-week period ended March 25, 2018. IRI reports total U.S. Multi-Outlet retail sales data in the food, drug, mass merchandise markets (including Walmart), dollar stores (Dollar General, Family Dollar, Fred's), selected warehouse clubs (BJ's and Sam's) and DeCA military commissaries and convenience stores, representing approximately 90% of Prestige Brands' categories for retail sales. 

(2)
“Market segment” is defined by us and is either a standard IRI category or a segment within a standard IRI category and is based on our product offerings and the categories in which we compete. 

(3)
Gaviscon is distributed by us in Canada only, and the market information was generated by Nielsen, an independent third party market research firm for the 52 week period ending March 3, 2018. Figures represent national, all channel retail sales data in the food, drug, mass merchandise (including Walmart), general merchandise (including Dollarama), and warehouse club stores (including Costco). Data reported for warehouse club and general merchandise is calculated based on home scan panel data, and not direct point of sale data.

(4)
The brands from our Care Pharmaceuticals Pty. Ltd. subsidiary ("Care Pharma") includes the Fess line of cold/allergy and saline nasal health products, which is the leading saline spray for both adults and children in Australia, and Hydralyte, which is the leading OTC brand in oral rehydration in Australia. Market information was generated by IRI Aztec, an independent market research firm, for the 52 week period ending March 18, 2018.

3




Our products are sold through multiple channels, including mass merchandisers and drug, food, dollar, convenience, and club stores, which reduces our exposure to any single distribution channel.  

We have grown our product portfolio both organically and through acquisitions. We develop our existing brands by investing in new product lines, brand extensions and strong advertising support. Acquisitions of OTC brands have also been an important part of our growth strategy. We have acquired strong and well-recognized brands from consumer products, pharmaceutical and private equity companies. While certain of these brands have long histories of brand development and investment, we believe that, at the time we acquired them, most were considered “non-core” by their previous owners. As a result, these acquired brands did not benefit from adequate management focus and marketing support during the period prior to their acquisition, which created opportunities for us to reinvigorate these brands and improve their performance post-acquisition. After adding a core brand to our portfolio, we seek to increase its sales, market share and distribution in both existing and new channels through our established retail distribution network.  We pursue this growth through increased spending on advertising and promotional support, new sales and marketing strategies, improved packaging and formulations and innovative development of brand extensions.

Competitive Strengths

Diversified Portfolio of Well-Recognized and Established Consumer Brands
We own and market a diverse portfolio of well-recognized consumer brands, some of which were established over 100 years ago.  Our diverse portfolio of products provides us with multiple sources of growth and minimizes our reliance on any one product or category. We provide significant marketing support to our portfolio that is designed to enhance our sales growth and our long-term profitability across our major and other significant brands, sometimes referred to as core brands (which are discussed on page 7 to this Annual Report on Form 10-K).  

Strong Competitor in Attractive Categories
We compete in product categories that address recurring consumer needs.  We believe we are well positioned in these categories due to the long history and consumer awareness of our brands, our strong market positions, and our low-cost operating model. The markets in which we sell our products, however, are highly competitive and include numerous national and global manufacturers, distributors, marketers and retailers. As a result, any one or more of our brands could suffer a decline in market position or sales.    

Proven Ability to Develop and Introduce New Products
We focus our marketing and product development efforts on the identification of under-served consumer needs, the design of products that directly address those needs, and the ability to extend our highly recognizable brand names to other products.  As an example of this philosophy, in 2018 we launched a number of new products, including DenTek Comfort Picks Wallet Card, Summer's Eve Simply Coconut Water Wash, Dramamine N Long Lasting Nausea Relief and Monistat Cooling Cream. In 2017, we launched Nix Ultra Kit, Compound W Complete Wart Kit, Luden's Green Apple, Chloraseptic Spray - improved flavors, Efferdent Reformulation, Gaviscon Max Relief Berry and Gaviscon Max Relief Peppermint. Although line extensions and new product introductions are important to the overall growth of a brand, our efforts may reduce sales of existing products within that brand.  

Efficient Operating Model
To gain operating efficiencies, we oversee the production planning and quality control aspects of the manufacturing, warehousing and distribution of our products, while we primarily outsource the operating elements of these functions to well-established third-party providers.  This approach allows us to benefit from their core competencies and maintain a highly variable cost structure with low overhead, limited working capital requirements, and minimal investment in capital expenditures, as evidenced by the following:
 
Gross
Margin %
G&A %
To Total Revenues
CapEx %
To Total Revenues
2018
55.4
8.2
1.2
2017
56.7
10.1
0.3
2016
57.9
9.0
0.4

In 2018, our gross margin percentage decreased 130 basis points versus 2017, primarily as a result of higher distribution costs and the acquisition of C.B. Fleet Company, Inc. ("Fleet"), which has lower gross margins. In 2017, our gross margin percentage decreased 120 basis points versus 2016, primarily as a result of lower gross margins associated with the acquired DenTek and Fleet brands and purchase accounting charges related to the Fleet acquisition. General and administrative costs, as a percentage of total revenues, decreased 190 basis points in 2018 versus 2017, primarily as a result of higher acquisition and integration charges in

4



2017 related to our acquisition of Fleet. General and administrative costs, as a percentage of total revenues, increased 110 basis points in 2017 versus 2016, primarily as a result of higher acquisition and integration charges. In 2018, our capital expenditures as a percentage of revenues increased 90 basis points versus 2017, primarily due to capital expenditures related our manufacturing facility in Lynchburg, Virginia, which was acquired in conjunction with our acquisition of Fleet. In 2017, our capital expenditures as a percentage of revenues decreased 10 basis points versus 2016.

Management Team with Proven Ability to Acquire, Integrate and Grow Brands
Our business has grown through acquisition and expansion of the many brands we have purchased as a result of the efforts of our experienced management team.  Our management team has significant experience in consumer product marketing, sales, legal and regulatory compliance, product development and customer service.  We rely on experienced personnel to bear the substantial responsibility of brand management and to effectuate our growth strategy and these managers nurture the brands to allow the brands to grow and evolve.

Growth Strategy

In order to continue to enhance our brands and drive growth, we focus our growth strategy on the following core competencies:

Effective Marketing and Advertising;

Sales Excellence;

Extraordinary Customer Service;

Innovation and Product Development; and

Strategic Acquisitions/Capital Uses

We execute this strategy through the following efforts:

Investments in Advertising and Promotion

We invest in advertising and promotion to drive the growth of our major brands and other significant brands, sometimes referred to as core brands, which are discussed on page 7 of this Annual Report on Form 10-K.  Our marketing strategy is focused primarily on consumer-oriented programs that include targeted coupon programs, media, and in-store and digital advertising.  While the absolute level of marketing expenditures differs by brand and category, we have often increased the amount of investment in our brands after acquiring them.  Advertising and promotional spend on our top five selling brands was approximately 16.4% of the revenues associated with these brands in 2018.

Growing our Categories and Market Share with Innovative New Products

One of our strategies is to broaden the categories in which we participate and increase our share within those categories through ongoing product innovation.  In 2018, we launched a number of new products, including DenTek Comfort Picks Wallet Card, Summer's Eve Simply Coconut Water Wash, Dramamine N Long Lasting Nausea Relief and Monistat Cooling Cream. In 2017, we launched Nix Ultra Kit, Compound W Complete Wart Kit, Luden's Green Apple, Chloraseptic Spray - improved flavors, Efferdent Reformulation, Gaviscon Max Relief Berry and Gaviscon Max Relief Peppermint. While there is always a risk that sales of existing products may be reduced by new product introductions, our goal is to grow the overall sales of our brands.

Increasing Distribution Across Multiple Channels

Our broad distribution base attempts to ensure that our products are well positioned across all available channels and that we are able to participate in changing consumer retail trends.  In an effort to ensure continued sales growth, we focus on expanding our reliance on direct sales while reducing our reliance on brokers.  

Growing Our International Business

International sales beyond the borders of North America represented 8.8%, 8.4% and 7.4% of revenues in 2018, 2017, and 2016, respectively, and are primarily from the acquisition of Fleet in 2017, DenTek Holdings, Inc. ("DenTek") in

5



2016, and the acquisition of Hydralyte in 2015.  We have designed and developed both products and packaging for specific international markets and expect that our international revenues will continue to grow. 

A number of our other brands have previously been sold internationally, and we seek to expand the number of brands sold through our existing international distribution network and continue to identify additional distribution partners for further expansion into other international markets.

Pursuing Strategic Acquisitions

Acquisitions are an important part of our overall strategy for growing revenue.  We have a history of growth through acquisition, the most recent example being the acquisition of Fleet in January 2017 (see "Our History and Accomplishments" below). While we believe that there will continue to be a pipeline of acquisition candidates for us to investigate, strategic fit and relative cost are of the utmost importance in our decision to pursue such opportunities.  We believe our business model allows us to integrate acquisitions in an efficient manner, while also providing opportunities to realize significant cost savings. 

Market Position

During 2018, approximately 78.0% of our revenues were from brands with a number one or number two market position, compared with approximately 75.5% and 72.1% during 2017 and 2016, respectively.  In 2018, these brands included BC/Goody's, Beano, Chloraseptic, Clear Eyes, Comet, Compound W, DenTek, Dramamine, Debrox, Efferdent, Fess, Fleet, Gaviscon, Hydralyte, Monistat, Nix, Pedia-Lax, and Summer's Eve.

Our History and Accomplishments

Since our formation as a Delaware corporation in 1996, we have added brands to our portfolio principally by acquiring strong and well-recognized brands from larger consumer products and pharmaceutical companies.  We engaged in strategic mergers and acquisitions over the last three years as follows:

2017 Acquisition

Acquisition of Fleet

On January 26, 2017, the Company completed the acquisition of Fleet pursuant to the merger agreement, dated as of December 22, 2016, for $823.7 million. The purchase price was funded by available cash on hand, additional borrowings under our asset-based revolving credit facility (the "2012 ABL Revolver"), and a new $740.0 million senior secured incremental term loan under our existing term loan facility (the "2012 Term Loan"). As a result of the merger, we acquired women's health, gastrointestinal and dermatological care OTC brands, including Summer’s Eve, Fleet, and Boudreaux's Butt Paste, as well as a “mix and fill” manufacturing facility in Lynchburg, Virginia. The financial results from the Fleet acquisition are included in the Company's North American and International OTC Healthcare segments.

2017 Divestitures

On July 7, 2016, we completed the sale of the Pediacare®, New Skin® and Fiber Choice® brands for $40.0 million plus the cost of inventory. During the year ended March 31, 2017, we recorded a pre-tax loss on sale of $56.2 million.

Concurrent with the completion of the sale of these brands, we entered into an option agreement with the buyer to purchase Dermoplast® at a specified earnings multiple as defined in the option agreement. The buyer paid a $1.25 million deposit for this option in September 2016 and later notified us of its election to exercise the option. In December 2016, we completed the sale of the Dermoplast® brand, and in a separate transaction, the e.p.t® brand, for an aggregate amount of $59.6 million. As a result, we recorded a pre-tax net gain on these divestitures of $3.9 million.

2017 Sale of License Rights

Historically, we received royalty income from the licensing of the names of certain of our brands in geographic areas or markets in which we do not directly compete. We have had royalty agreements for our Comet brand for several years, which included options on behalf of the licensee to purchase license rights in certain geographic areas and markets in perpetuity. In December 2014, we amended these agreements, and we sold rights to use of the Comet brand in certain Eastern European countries to a third-party licensee in exchange for $10.0 million as a partial early buyout of the license. The amended agreement provided that we

6



would continue to receive royalty payments of $1.0 million per quarter for the remaining geographic areas and also granted the licensee an option to acquire the license rights in the remaining geographic areas any time after June 30, 2016. In July 2016, the licensee elected to exercise its option. In August 2016, we received $11.0 million for the purchase of the remaining license rights and, as a result, we recorded a pre-tax gain of $1.2 million and reduced our indefinite-lived tradenames by $9.0 million. Furthermore, the licensee was no longer required to make additional royalty payments to us, and as a result, our royalty income was reduced accordingly.

2016 Acquisition

Acquisition of DenTek

On February 5, 2016, we completed the acquisition of DenTek, a privately-held marketer and distributor of specialty oral care products. The closing was finalized pursuant to the terms of the merger agreement, announced November 23, 2015, under which we agreed to acquire DenTek from its stockholders for a purchase price of $226.9 million. The acquisition expanded our portfolio of brands, strengthened our existing oral care platform and increased our geographic reach in parts of Europe. We financed the transaction with a combination of available cash on hand, available cash from our 2012 ABL Revolver, and financing of an additional unsecured bridge loan. The DenTek brands are included in our North American and International OTC Healthcare segments.
 
Products

We conduct our operations through three reportable segments:

North American OTC Healthcare;

International OTC Healthcare; and

Household Cleaning.

North American and International OTC Healthcare Segments

Our portfolio of OTC Healthcare products includes the following major brands: DenTek specialty oral care products, Monistat women’s health products, Nix lice treatment, Chloraseptic sore throat treatments, Clear Eyes eye care products, Compound W wart treatments, Efferdent denture care products, Luden's throat drops, Dramamine motion sickness treatment, BC and Goody's pain relievers, Beano gas prevention, Debrox earwax remover, Pedia-Lax pediatric laxatives, Fleet laxatives, Summer's Eve women's health products, Boudreaux's Butt Paste, Hydralyte for rehydration and electrolyte replacement, Fess nasal saline spray and Gaviscon antacid in Canada.

Other significant brands include Little Remedies pediatric healthcare products, Orabrush oral hygiene products, and The Doctor's oral hygiene products.

In 2018, the North American OTC Healthcare segments accounted for 83.5% of our net revenues, compared to 81.7% and 81.6% in 2017 and 2016, respectively. In 2018, the International OTC Healthcare segment accounted for 8.8% of our net revenues, compared to 8.3% and 7.2% in 2017 and 2016, respectively.

The following describes our major brands in the North American and International OTC Healthcare segments:

BC/Goody's
BC and Goody's compete in the $3.7 billion U.S. Adult Analgesic category. They are the top two U.S. OTC pain reliever brands in a powder form. Developed in North Carolina over 80 years ago, their unique form delivers fast pain relief. The combined brands are the number one Adult Analgesic product in convenience stores according to IRI. BC is available in Original, Cherry, Arthritis and new Sinus Pain. Goody's includes Extra Strength, Back & Body, PM, Cool Orange, Mixed Fruit Blast and the single dose liquid pain reliever, Headache Relief Shot.

Beano
Beano commands the number one position in the U.S. Gas Prevention category and the number two overall position in the larger $183.6 million U.S. Anti-Gas category. The product is formulated with a unique digestive enzyme that works naturally with the body to prevent gas symptoms before they start.

Boudreaux's Butt Paste

7



Boudreaux's Butt Paste is the number four brand in the $189.2 million Baby Ointments category. Boudreaux's products include various diaper rash ointments.

Chloraseptic
Chloraseptic was originally developed by a dentist in 1957 to relieve sore throats and mouth pain.  Chloraseptic’s liquid sore throat spray is the number one selling product in the U.S. Sore Throat Liquids/Lozenges market and was ranked the number one U.S. pharmacist recommended sore throat liquid/spray by Pharmacy Times and U.S. News & World Report. 

Clear Eyes
Clear Eyes has been marketed as an effective eye care product that helps eliminate redness and helps moisturize the eye.  Clear Eyes is among the leading brands in the U.S. OTC Personal Eye Care category.  

Compound W
Compound W has a long heritage, with its wart removal products having been introduced more than 50 years ago.  Compound W products are specially designed to provide relief from common and plantar warts and are sold in multiple forms of treatment depending on the consumer’s need, including Fast-Acting Liquid, Fast-Acting Gel, One Step Pads and Freeze Off, a cryogenic-based wart removal system that works in as little as one application.  Compound W is the number one U.S. pharmacist recommended wart remover according to Pharmacy Times. Additionally, Compound W is the number one wart removal brand in the United States.  

Debrox
Debrox is the number one brand of U.S. OTC ear wax removal aids. The product line consists of two items: an ear wax removal kit containing liquid drops and an ear washer bulb, and a second item containing just the liquid drops as a refill. With Debrox, consumers have a safe, gentle method for removing ear wax build up while in the privacy of their homes. Debrox is the number one recommended brand with pharmacists in the United States according to Pharmacy Times.

DenTek
DenTek is the number two brand in the PEG Oral Care market and includes floss picks, interdental brushes, dental guards, dental repair and wax, floss threaders, dental picks, and tongue cleaners.

Dramamine
Dramamine is the number one brand and the number one pharmacist recommended brand, according to Pharmacy Times, in the $108.4 million U.S. Motion Sickness Relief category. The product line includes Dramamine Non-Drowsy Naturals, Dramamine for Kids, a Less Drowsy formula and a Chewable form, in addition to the top selling Dramamine original product.

Efferdent
Efferdent Denture Cleanser holds the number two position in the $144.9 million U.S. Denture Cleanser Tablets category. The January 2011 introduction of Efferdent PM extended the brand into the growing overnight cleanser market. In 2014, we introduced Fresh Guard by Efferdent. This product is designed specifically for the cleaning of mouth guards, retainers, removable braces and mouth guard appliances.

Fess
In the Australia market, Fess is currently the leading brand in the Nasal Saline Spray market.

Fleet
Fleet is the number one brand in the U.S. Laxative-Enema/Suppositories category. First sold in 1869, Fleet products include enemas, wipes, suppositories and oral laxatives.

Gaviscon
Gaviscon is currently the number one brand in the $170.2 million Canadian Upset Stomach Remedies category. Gaviscon's success is partly attributed to a differentiated method of action versus traditional antacid products, as it creates a foam barrier to keep stomach acid from backing up into the esophagus.

Hydralyte
Hydralyte is the leading OTC brand in the Oral Rehydration market in Australia.

Luden's
Luden's throat drops heritage spans more than 130 years in the $736.8 million U.S. Cough Drops category. In 2014, Luden’s expanded its product portfolio with the introduction of Sugar Free Black Cherry, Watermelon and Blue Raspberry throat drops.

8



In 2017, Luden's introduced Strawberry Banana and Green Apple flavors. In 2018, Luden's introduced Honey Berry and Red Hot Cinnamon flavors.

Monistat
Monistat, the number one doctor recommended U.S. OTC brand for yeast infection treatment, is currently the second largest selling brand in the Company. The active ingredient, miconazole, is as effective at curing yeast infections as the leading prescription pill. Monistat comes in 3 different doses: 1-day, 3-day and 7-day; in 3 different forms: cream, ovule and suppository; and with or without symptom relief accessories: external cream and wipes. Monistat is the number one brand in the U.S. Vaginal Treatments/Anti-Fungal category. The Monistat® Complete Care™ line of products was introduced in 2014 and includes an Instant Itch Relief Cream, Vaginal Health Test, Chafing Relief Powder Gel®, Stay Fresh Feminine Freshness Gel and, launched in 2018, Cooling Cloths and an Instant Itch Relief Spray.

Nix
Nix is the number one brand in the U.S. Lice/Parasite Treatments category. Nix kills lice and their eggs while also protecting against lice re-infestation for up to 14 days. It is safe for use on children as young as 2 months old and is the number one recommended brand for lice treatments according to Pharmacy Times.

Pedia-Lax
Pedia-Lax is the number one brand in the $29.8 million Pediatric Laxatives category.

Summer's Eve
Summer's Eve is currently the largest selling brand in the Company and is the number one brand in the Feminine Hygiene category. Summer's Eve offers a variety of feminine hygiene products including washes, cloths, sprays and powders.

Household Cleaning Segment

Our portfolio of Household Cleaning brands includes the Chore Boy, Comet and Spic and Span brands.  During 2018, the Household Cleaning segment accounted for 7.7% of our revenues, compared with 10.0% and 11.2% in 2017 and 2016, respectively.

Comet
Comet was originally introduced in 1956 and is one of the most widely recognized household cleaning brands.  Comet is the number one brand in the U.S. Abrasive Tub and Tile Cleaners segment of the household cleaning category that includes non-scratch, abrasive powders, creams, and liquids.  Comet products include several varieties of cleaning powders, spray and cream, both abrasive and non-abrasive.  

For additional information concerning our business segments, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 19 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Marketing and Sales

Our marketing strategy is based on the acquisition and the rejuvenation of established consumer brands that possess what we believe to be significant brand value and unrealized potential.  Our marketing objective is to increase sales and market share by developing innovative new products and line extensions and executing creative and cost-effective advertising and promotional programs.  After we acquire a brand, we implement a brand building strategy that uses the brand’s existing consumer awareness to maximize sales of current products and provides a vehicle to drive growth through product innovation.  This brand building process involves the evaluation of the existing brand name, the development and introduction of innovative new products, and the execution of support programs.  Recognizing that financial resources are limited, we allocate our resources to focus on our core brands with the most impactful, consumer-relevant initiatives that we believe have the greatest opportunities for growth and financial success.  Brand priorities vary from year-to-year and generally revolve around new product introductions.

Customers

Our senior management team and dedicated sales force strive to maintain long-standing relationships with our top 50 domestic customers.  We also contract with third-party sales management enterprises that interface directly with our remaining customers and report directly to members of our sales management team.


9



We enjoy broad distribution across each of the major retail channels, including mass merchandisers, drug, food, dollar, convenience and club stores.  The following table sets forth the percentage of gross sales across our six major distribution channels during each of the past three years ended March 31:

 
Percentage of Gross Sales(1)
Channel of Distribution
2018
 
2017
 
2016
Mass
37.2
 
30.9
 
30.2
Drug
24.6
 
22.8
 
22.3
Food
15.8
 
16.5
 
18.0
Dollar
9.0
 
9.8
 
10.7
Convenience
3.2
 
7.0
 
6.6
Club
1.6
 
3.0
 
2.7
Other
8.6
 
10.0
 
9.5
(1)
Includes estimates for some of our wholesale customers that service more than one distribution channel.

Due to the diversity of our product lines, we believe that each of these channels is important to our business, and we continue to seek opportunities for growth in each channel.

During 2018, 2017, and 2016, Walmart accounted for approximately 23.8%, 21.1%, and 20.2%, respectively, of our gross revenues. We expect that for future periods, our top ten customers, including Walmart, will, in the aggregate, continue to account for a large portion of our sales.

Our strong customer relationships and product recognition allow us to attempt to capitalize on a number of important strategic opportunities, including (i) minimization of slotting fees, (ii) maximization of new product introductions, (iii) maximization of shelf space prominence, and (iv) minimization of cash collection days.  We believe that our emphasis on strong customer relationships, speed and flexibility and leading sales technology capabilities, combined with consistent marketing support programs and ongoing product innovation, will continue to maximize our competitiveness in the increasingly complex retail environment.

The following table sets forth a list of our primary distribution channels and our principal customers for each channel:
Distribution Channel
 
Customers
 
Distribution Channel
 
Customers
Mass
 
Meijer
 
Drug
 
CVS
 
 
Target
 
 
 
Rite Aid
 
 
Walmart
 
 
 
Walgreens
 
 
 
 
 
 
 
Food
 
Ahold/Delhaize
 
Dollar
 
Dollar General
 
 
Kroger
 
 
 
Dollar Tree
 
 
Publix
 
 
 
Family Dollar
 
 
Albertson's/Safeway
 
 
 
 
 
 
Supervalu
 
Club
 
BJ’s Wholesale Club
 
 
Wakefern
 
 
 
Costco
 
 
HEB
 
 
 
Sam’s Club
 
 
Wegman's
 
 
 
 
 
 
 
 
 
 
 
Convenience
 
McLane
 
Other
 
Amazon
 
 
HT Hackney
 
 
 
 
 
 
Core Mark
 
 
 
 


10



Outsourcing and Manufacturing

In order to maximize our competitiveness and efficiently allocate our resources, third-party manufacturers fulfill most of our manufacturing needs.  We have found that contract manufacturing often maximizes our flexibility and responsiveness to industry and consumer trends while minimizing the need for capital expenditures.  We select contract manufacturers based on their core competencies and our perception of the best overall value, including factors such as (i) depth of services, (ii) professionalism and integrity of the management team, (iii) manufacturing agility and capacity, (iv) regulatory compliance, and (v) competitive pricing.  We also conduct thorough reviews of each potential manufacturer’s facilities, quality standards, capacity and financial stability.  We generally purchase only finished products from our manufacturers.

Our primary contract manufacturers provide comprehensive services from product development through the manufacturing of finished goods.  They are responsible for such matters as (i) production planning, (ii) product research and development, (iii) procurement, (iv) production, (v) quality testing, and (vi) almost all capital expenditures.  In most instances, we provide our contract manufacturers with guidance in the areas of (i) product development, (ii) performance criteria, (iii) regulatory guidance, (iv) sourcing of packaging materials, and (v) monthly master production schedules.  This management approach results in minimal capital expenditures and maximizes our cash flow, which allows us to reinvest to support our marketing initiatives, fund brand acquisitions or repay outstanding indebtedness.

At March 31, 2018, we had relationships with 116 third-party manufacturers.  Of those, we had long-term contracts with 46 manufacturers that produced items that accounted for approximately 73.6% of our gross sales for 2018, compared to 47 manufacturers with long-term contracts that accounted for approximately 78.4% of our gross sales in 2017.  The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing our products at any time and for any reason or initiate arbitrary and costly price increases, which could have a material adverse effect on our business and results of operations. Although we are in the process of negotiating long-term contracts with certain key manufacturers, we may not be able to reach a timely agreement, which could have a material adverse effect on our business and results of operations.

At March 31, 2018, suppliers for our key brands included GSK, Fareva, Denison Pharmaceuticals, Inc., Aspen Pharmacare, Olds Products Company, Tower Laboratories Ltd., and Contract Pharmaceuticals Corp. We enter into manufacturing agreements for a majority of our products by sales volume, each of which vary based on the capabilities of the third-party manufacturer and the products being supplied.  These agreements explicitly outline the manufacturer’s obligations and product specifications with respect to the brand or brands being produced.  The purchase price of products is subject to change pursuant to the terms of these agreements due to fluctuations in raw material, packaging and labor costs.  Other products are manufactured on a purchase order basis, which is generally based on batch sizes and results in no long-term obligations or commitments.

In conjunction with the 2017 acquisition of Fleet, we acquired a "mix and fill" manufacturing facility in Lynchburg, Virginia, which manufactures products comprising approximately two-thirds of Fleet's sales.

We believe that most of the raw materials and packaging used to produce our products at our manufacturing facility in Virginia are readily available through multiple sources. 

Warehousing and Distribution

We receive orders from retailers and/or brokers primarily by electronic data interchange, which automatically enters each order into our information systems and then routes the order to our distribution center.  The distribution center will, in turn, send a confirmation that the order was received, fill the order and ship the order to the customer, while sending a shipment confirmation to us.  Upon receipt of the shipment confirmation, we send an invoice to the customer.

We manage product distribution in the continental United States primarily through one facility located in St. Louis, which is owned and operated by a third-party provider.  Our U.S. warehouse provider provides warehouse services including storage, handling and shipping, as well as transportation services, with respect to our full line of products, including (i) complete management services, (ii) carrier claims administration, (iii) proof of delivery, (iv) procurement, (v) report generation, and (vi) freight payment services.


11



Competition

The business of selling brand name consumer products in the OTC Healthcare and Household Cleaning categories is highly competitive.  These markets include numerous national and global manufacturers, distributors, marketers and retailers that actively compete for consumers’ business both in the United States and abroad.  In addition, like most companies that market products in these categories, we are experiencing increased competition from “private label” products introduced by major retail chains.  While we believe that our branded products provide superior quality and benefits, we are unable to predict the extent to which consumers will purchase “private label” products as an alternative to branded products.

Our principal competitors vary by industry category.  Competitors in the OTC Healthcare category include: Johnson & Johnson, The Procter & Gamble Company, Reckitt Benckiser, Kraft Foods, GSK, Sunstar America, Inc., Pfizer, Novartis Consumer Healthcare, Combe, and Boehringer Ingelheim,

Competitors in the Household Cleaning category include: Henkel AG & Co., Colgate-Palmolive Company, The Clorox Company, The Procter & Gamble Company, and 3M Company.

We compete on the basis of numerous factors, including brand recognition, product quality, performance, value to customers, price, and product availability at the retail level.  Advertising, promotion, merchandising and packaging, the timing of new product introductions, and line extensions also have a significant impact on customers’ buying decisions and, as a result, on our sales.  The structure and quality of our sales force, as well as sell-through of our products, affect in-store position, wall display space and inventory levels in retail outlets.  Our markets are also highly sensitive to the introduction of new products, which may rapidly capture a significant share of the market.  

Many of the competitors noted above are larger and have substantially greater research and development and financial resources than we do, and may therefore have the ability to spend more aggressively and consistently on research and development, advertising and marketing, and to respond more effectively to changing business and economic conditions. See “Competitive Strengths” above for additional information regarding our competitive strengths and Part I, Item 1A “Risk Factors” below for additional information regarding competition in our industry.
 
Regulation

Product Regulation
The formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products are subject to extensive regulation by various U.S. federal agencies, including the U.S. Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission (“CPSC”), and the Environmental Protection Agency (“EPA”), and various agencies of the states, localities and foreign countries in which our products are manufactured, distributed and sold.  Our Regulatory Team is guided by a senior member of management and staffed by individuals with appropriate legal and regulatory experience.  Our Regulatory and Operations teams work closely with our third-party manufacturers and our own manufacturing operation on quality-related matters, while we monitor our third party manufacturers' compliance with FDA and foreign regulations and perform periodic audits to ensure compliance.  This continual evaluation process is designed to ensure that our manufacturing processes and products are of the highest quality and in compliance with known regulatory requirements.  If the FDA or a foreign governmental authority chooses to audit a particular third-party manufacturing facility, we require the third-party manufacturer to notify us immediately and update us on the progress of the audit as it proceeds.  If we or our manufacturers fail to comply with applicable regulations, we could become subject to significant claims or penalties or be required to discontinue the sale of the non-compliant product. In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant additional compliance costs or discontinuation of product sales.

Most of our U.S. OTC drug products are regulated pursuant to the FDA’s monograph system.  The monographs set out the active ingredients and labeling indications that are permitted for certain broad categories of U.S. OTC drug products.  When the FDA has finalized a particular monograph, it has concluded that a properly labeled product formulation is generally recognized as safe and effective and not misbranded.  A tentative final monograph indicates that the FDA has not made a final determination about products in a category to establish safety and efficacy for a product and its uses.  However, unless there is a serious safety or efficacy issue, the FDA typically will exercise enforcement discretion and permit companies to sell products conforming to a tentative final monograph until the final monograph is published.  Products that comply with either final or tentative final monograph standards do not require pre-market approval from the FDA.

Certain of our U.S. OTC drug products are New Drug Application (“NDA”) or Abbreviated New Drug Application (“ANDA”) products and are manufactured and labeled in accordance with a FDA-approved submission. These products are subject to reporting requirements as set forth in FDA regulations.

12




Certain of our U.S. OTC Healthcare products are medical devices regulated by the FDA through a system that usually involves pre-market clearance.  During the review process, the FDA makes an affirmative determination as to the sufficiency of the label directions, cautions and warnings for the medical devices in question.

Certain of our products are considered cosmetics regulated by the FDA through the Federal Food, Drug, and Cosmetic Act (FDC Act) and the Fair Packaging and Labeling Act. FDA does not require pre-market clearance but seeks to insure the products are not adulterated or misbranded.

In accordance with the FDC Act and FDA regulations, we and our third-party manufacturers of U.S. products must also comply with the FDA’s current Good Manufacturing Practices (“GMPs”).  The FDA inspects our facilities and those of our third-party manufacturers periodically to determine that both we and our third-party manufacturers are complying with GMPs.

A number of our products are regulated by the CPSC under the Federal Hazardous Substances Act (the “FHSA”), the Poison Prevention Packaging Act of 1970 (the “PPPA”) and the Consumer Products Safety Improvement Act of 2008 (the “CPSIA”).  Certain of our household products are considered to be hazardous substances under the FHSA and therefore require specific cautionary warnings to be included in their labeling for such products to be legally marketed.  In addition, a small number of our products are subject to regulation under the PPPA and can only be legally marketed if they are dispensed in child-resistant packaging or labeled for use in households where there are no children.  The CPSIA requires us to make available to our customers certificates stating that we are in compliance with any applicable regulation administered by the CPSC.  

Nix spray and certain Household Cleaning products are considered pesticides under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”).  Generally speaking, any substance intended for preventing, destroying, repelling, or mitigating any pest is considered to be a pesticide under FIFRA.  We also market and distribute certain household products under our Comet and Spic and Span brands that make antibacterial and/or disinfectant claims governed by FIFRA.  Due to the antibacterial and/or disinfectant claims on certain of the Comet and Spic and Span products and the lice killing claims on Nix spray, such products are considered to be pesticides under FIFRA and are required to be registered with the EPA and contain certain disclosures on the product labels.  In addition, the contract manufacturers from which we source these products must be registered with the EPA.  Our EPA registered products are also subject to state regulations and the rules and regulations of the various jurisdictions where these products are sold.

Our international business is also subject to product regulations by local regulatory authorities in the various regions where these businesses operate, including regulations regarding manufacturing, labeling, distribution, sale and storage.

Other Regulations
We are also subject to a variety of other regulations in various foreign markets, including regulations pertaining to import/export and antitrust issues.  To the extent we decide to commence or expand operations in additional countries, we may be required to obtain an approval, license or certification from the country’s ministry of health or comparable agency.  We must also comply with product labeling and packaging regulations that may vary from country to country.  Government regulations in both our domestic and international markets can delay or prevent the introduction, or require the reformulation or withdrawal, of some of our products.  Our failure to comply with these regulations can also result in a product being removed from sale in a particular market, either temporarily or permanently.  In addition, we are subject to FTC and state regulations, as well as foreign regulations, relating to our product claims and advertising.  If we fail to comply with these regulations, we could be subject to enforcement actions and the imposition of penalties.

Intellectual Property
We own a number of trademark registrations and applications in the United States, Canada and other foreign countries.  The following are some of the most important registered trademarks we own in the United States and/or Canada:  BC, Beano, Boudreaux's Butt Paste, Chloraseptic, Chore Boy, Cinch, Clear Eyes, Comet, Compound W, Debrox, DenTek, Dramamine, Ecotrin, Efferdent, Effergrip, Fleet, Freeze Off, Gaviscon, Gly-Oxide, Goody's, Little Remedies, Luden's, Monistat, NasalCrom, Nix, Spic and Span, Summer's Eve, Tagamet, The Doctor’s Brushpicks, The Doctor’s NightGuard, and Wartner.

Our trademarks and tradenames are how we convey that the products we sell are “brand name” products.  Our ownership of these trademarks and tradenames is very important to our business, as it allows us to compete based on the value and goodwill associated with these marks.  We may also license others to use these marks.  Additionally, we own or license patents on innovative and proprietary technology.  The patents evidence the unique nature of our products, provide us with exclusivity, and afford us protection from the encroachment of others.  None of the patents that we own or license, however, is material to us on a consolidated basis. Enforcing our rights, or the rights of any of our licensors, represented by these trademarks, tradenames and patents is critical to

13



our business and may require significant expense.  If we are not able to effectively enforce our rights, others may be able to dilute our trademarks, tradenames and patents and diminish the value associated with our brands and technologies.

We do not own all of the intellectual property rights applicable to our products.  In those cases where our third-party manufacturers own patents that protect our products, we are dependent on them as a source of supply for our products. In addition, we rely on our suppliers for their enforcement of their intellectual property rights against infringing products.

We have granted a paid-up license to an international consumer packaged goods company for the right to use the Comet, Spic and Span and Chlorinol trademarks in the commercial/institutional/industrial business throughout the world (excluding Russia and specified Eastern European countries). We also transferred to the licensee the Comet and Chlorinol trademarks in Russia and specified Eastern European countries. We retain the the right to use the Comet, Spic and Span and Chlorinol trademarks in the retail/household business throughout the world (excluding Russia and specified Eastern European countries).

Seasonality
The first quarter of our fiscal year typically has the lowest level of revenue due to the seasonal nature of certain of our brands relative to the summer and winter months.  In addition, the first quarter generally is the least profitable quarter due to the increased advertising and promotional spending to support those brands with a summer selling season, such as Clear Eyes products, Compound W, and Wartner.  The level of advertising and promotional campaigns in the third quarter influences sales of our cough/cold products, such as Chloraseptic, Little Remedies, and Luden's, during the fourth quarter cough and cold winter months.  Additionally, the fourth quarter typically has the lowest level of advertising and promotional spending as a percent of revenue.

Employees
We employed approximately 530 full time and no part time individuals at March 31, 2018. Of our approximately 530 employees, approximately 390 are non-production employees.  None of our employees is a party to a collective bargaining agreement.  Management believes that our relations with our employees are good.

Backlog Orders
We define backlog as orders with requested delivery dates prior to March 31st that were not shipped as of March 31st. We had no significant backlog orders at March 31, 2018 or 2017.

Available Information
Our Internet address is www.prestigebrands.com.  We make available free of charge on or through our Internet website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, as well as the Proxy Statement for our annual stockholders’ meetings, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).  Information on our Internet website does not constitute a part of this Annual Report on Form 10-K and is not incorporated herein by reference, including any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

We have adopted a Code of Conduct Policy, Code of Ethics for Senior Financial Employees, Policy and Procedures for Complaints Regarding Accounting, Internal Controls and Auditing Matters, Corporate Governance Guidelines, Audit Committee Pre-Approval Policy, and Charters for our Audit, Compensation and Nominating and Corporate Governance Committees, as well as a Related Persons Transaction Policy and Stock Ownership Guidelines.  We will provide to any person without charge, upon request, a copy of the foregoing materials.  Any requests for the foregoing documents from us should be made in writing to:

Prestige Brands Holdings, Inc.
660 White Plains Road
Tarrytown, New York 10591
Attention: Secretary

We intend to disclose future amendments to the provisions of the foregoing documents, policies and guidelines and waivers therefrom, if any, on our Internet website and/or through the filing of a Current Report on Form 8-K with the SEC, to the extent required under the Exchange Act.

14



ITEM 1A. RISK FACTORS
                 
The high level of competition in our industry, much of which comes from competitors with greater resources, could adversely affect our business, financial condition and results of operations.

The business of selling brand name consumer products in the OTC Healthcare and Household Cleaning categories is highly competitive.  These markets include numerous manufacturers, distributors, marketers and retailers that actively compete for consumers’ business both in the United States and abroad.  Many of these competitors are larger and have substantially greater resources than we do, and may therefore have the ability to spend more aggressively on research and development, advertising and marketing, and to respond more effectively to changing business and economic conditions.  If this were to occur, it could have a material adverse effect on our financial condition and results of operations.

Certain of our product lines that account for a large percentage of our sales have a smaller market share relative to our competitors.  In some cases we may have a number one market position but still have a relatively small share of the overall market. Alternatively, we may hold a number two market position but have a substantially smaller share of the market versus the number one competitor.  See “Part I, Item 1. Business - Major Brands” of this Annual Report on Form 10-K for information regarding market share.

We compete for customers’ attention based on a number of factors, including brand recognition, product quality, performance, value to customers, price and product availability at the retail level.  Advertising, promotion, merchandising and packaging and the timing of new product introductions and line extensions also have a significant impact on consumer buying decisions and, as a result, on our sales. Our markets are highly sensitive to the introduction of new products, which may rapidly capture a significant share of the market.  New product innovations by our competitors or our failure to develop new products or the failure of a new product launch by the Company, could have a material adverse effect on our business, financial condition and results of operations. If our advertising, marketing and promotional programs are not effective, our sales may decline. In addition, the introduction or expansion of store brand products that compete with our products has impacted and could in the future impact our sales and results of operations.

The structure and quality of our sales force, as well as sell-through of our products, affect in-store position, wall display space and inventory levels in retail stores.  If we are unable to maintain our current distribution network, product offerings in retail stores, inventory levels and in-store positioning of our products, our sales and operating results could be adversely affected.

In addition, competitors may attempt to gain market share by offering products at prices at or below those typically offered by us.  Competitive pricing may require us to reduce prices, which may result in lost revenue or a reduction of our profit margins.  Future price adjustments by our competitors or our inability to react with price adjustments of our own could result in a loss of market share, which could have a material adverse effect on our financial condition and results of operations.

We depend on a limited number of customers with whom we have no long-term agreements for a large portion of our gross sales, and the loss of one or more of these customers could reduce our gross sales and have a material adverse effect on our financial condition and results of operations.

During 2018, one customer, Walmart, which accounted for approximately 23.8% of our gross sales, was our only customer that accounted for more than 10% of our gross revenues.  We expect that for future periods, our top ten customers, including Walmart, will, in the aggregate, continue to account for a large and potentially increasing portion of our sales.  The loss of one or more of these top customers, or any significant decrease in sales to these customers based on changes in their strategies including a reduction in the number of brands they carry, the amount of shelf space they dedicate to store brand products, inventory management, or a significant decrease in our retail display space in any of these customers’ stores, could reduce our sales and have a material adverse effect on our financial condition and results of operations.

In addition, our business is based primarily upon individual sales orders.  We typically do not enter into long-term contracts with our customers.  Accordingly, our customers could cease buying products or reduce the number of items they buy from us at any time and for any reason.  The fact that we do not have long-term contracts with our customers means that we have no recourse in the event a customer no longer wants to purchase products from us or reduces the number of items purchased.  If a significant number of our smaller customers, or any of our significant customers, elect not to purchase products from us, our financial condition and results of operations could be adversely affected.

We primarily depend on third-party manufacturers to produce the products we sell.  If we are unable to maintain these manufacturing relationships or fail to enter into additional relationships, as necessary, we may be unable to meet customer demand and our business, sales and profitability could suffer as a result.


15



Many of our products are produced by a limited number of third-party manufacturers.  Our ability to retain our current manufacturing relationships and engage in and successfully transition to new relationships is critical to our ability to deliver quality products to our customers in a timely manner.  Without adequate supplies of quality merchandise, our sales would decrease materially and our business would suffer.  In the event that our primary third-party manufacturers are unable or unwilling to ship products to us in a timely manner, we would have to rely on secondary manufacturing relationships or, to the extent unavailable, identify and qualify new manufacturing relationships.  Because of the unique manufacturing requirements of certain products, the Company may be unable to qualify new suppliers in a timely way or at the quantities, quality and price levels needed. From time to time, certain of the Company's manufacturers have had difficulty meeting demand, which can cause shortages of our products. In such instances, we may not be able to identify or qualify secondary manufacturers for such products in a timely manner, and such manufacturers may not allocate sufficient capacity to allow us to meet our commitments to customers.  In addition, identifying alternative manufacturers without adequate lead times may involve additional manufacturing expense, delay in production or product disadvantage in the marketplace. For example, we are moving our BC®/Goody's® product lines to a new third party manufacturer. Any delays or issues with the transition may have an adverse impact on sales of the products.  In general, the consequences of not securing adequate, high quality and timely supplies of merchandise would negatively impact inventory levels, which could damage our reputation and result in lost customers and sales, and could have a material adverse effect on our business, financial condition and results of operations.

The manufacturers we use have increased the cost of many of the products we purchase, which could adversely affect our margins in the event we are unable to pass along these increased costs to our customers or identify and qualify new manufacturers.  Increased costs could also have a material adverse effect on our financial condition and results of operations.

At March 31, 2018, we had relationships with 116 third-party manufacturers.  Of those, we had long-term contracts with 46 manufacturers that produced items that accounted for approximately 73.6% of our gross sales for 2018, compared to 47 manufacturers with long-term contracts that produced approximately 78.4% of gross sales in 2017.  The fact that we do not have long-term contracts with certain manufacturers means that they could cease manufacturing our products at any time and for any reason or initiate arbitrary and costly price increases, which could have a material adverse effect on our business and results of operations. Although we are in the process of negotiating long-term contracts with certain key manufacturers, we may not be able to reach a timely agreement, which could have a material adverse effect on our business and results of operations.

Our inability to successfully identify, negotiate, complete and integrate suitable acquisition candidates and to obtain necessary financing could have an adverse impact on our growth and our business, financial condition and results of operations.

Achievement of our strategic objectives requires the acquisition, or potentially the disposition, of certain brands or product lines, and these acquisitions and dispositions may not be successful.

The majority of our growth has been driven by acquiring other brands and companies. At any given time, we may be engaged in discussions with respect to possible acquisitions that are intended to enhance our product portfolio, enable us to realize cost savings, and further diversify our category, customer and channel focus. Our ability to successfully grow through acquisitions depends on our ability to identify, negotiate, complete and integrate suitable acquisition candidates and to obtain any necessary financing. However, we may not be able to identify and successfully negotiate suitable strategic acquisitions at attractive valuations, obtain financing for future acquisitions on satisfactory terms, or otherwise complete future acquisitions. These acquisition efforts could also divert the attention of our management and key personnel from our business operations. All acquisitions entail various risks such that after completing an acquisition, we may also experience:

Difficulties in integrating any acquired companies, suppliers, personnel and products into our existing business;

Difficulties in realizing the benefits of the acquired company or products, including expected returns, margins, synergies and profitability;

Higher costs of integration than we anticipated;

Exposure to unexpected liabilities of the acquired business;

Difficulties in retaining key employees of the acquired business who are necessary to operate the business;

Difficulties in maintaining uniform standards, controls, procedures and policies throughout our acquired companies; or

Adverse customer or stockholder reaction to the acquisition.


16



As a result, any acquisitions we pursue or complete could adversely impact our business, financial condition and results from operations. In addition, any acquisition could adversely affect our operating results as a result of higher interest costs from any acquisition-related debt and higher amortization expenses related to the acquired intangible assets.

In the event that we decide to divest of a brand or product line, we may encounter difficulty finding, or be unable to find, a buyer on acceptable terms in a timely manner.

Additionally, the pursuit of acquisitions and divestitures could also divert management's attention from our business operations and result in a delay in our efforts to achieve our strategic objectives.

Price increases for raw materials, labor, energy, transportation costs and other manufacturer, logistics provider or distributor demands could have an adverse impact on our margins.

The costs to manufacture and distribute our products are subject to fluctuation based on a variety of factors. Increases in commodity raw material (including resins), packaging component prices, and labor, energy and fuel costs and other input costs could have a significant impact on our financial condition and results of operations if our third party manufacturers, logistics providers or distributors pass along those costs to us. In addition, while we have historically outsourced the manufacturing of our products to third parties, as a result of our acquisition of Fleet, we now operate a manufacturing facility and we will directly incur any increases in manufacturing costs for these products. If we are unable to increase the price for our products to our customers or continue to achieve cost savings in a rising cost environment, any such cost increases would reduce our gross margins and could have a material adverse effect on our financial condition and results of operations. If we increase the price of our products in order to maintain our current gross margins for our products, such increase may adversely affect demand for, and sales of, our products, which could have a material adverse effect on our business, financial condition and results of operations.

Disruption in our St. Louis distribution center or our Virginia manufacturing facility may prevent us from meeting customer demand, and our sales and profitability may suffer as a result.

Our product distribution in the United States is managed by a third party through one primary distribution center near St. Louis, Missouri, and with the acquisition of Fleet, we now operate one manufacturing facility located in Lynchburg, Virginia, which manufactures products comprising approximately two-thirds of Fleet's sales. A serious disruption, caused by performance or contractual issues with the third party distribution manager or by earthquake, flood, or fire, could damage our inventory and/or materially impair our ability to distribute our products to customers in a timely manner or at a reasonable cost. For example, we previously identified the integration of Fleet as one factor that could create significant disruption. We also reported in 2017, that the third party distribution manager experienced a high rate of employee turnover and a tightened freight carrier market that caused us to experience significantly increased warehouse and shipping costs. Any disruption as a result of business integration or third party performance at our distribution center could result in increased costs, expense and/or shipping times, and could cause us to incur customer fees and penalties. In addition, any serious disruption to our Fleet manufacturing facility could materially impair our ability to manufacture many of the Fleet products, which would also limit our ability to provide products to customers in a timely manner or at a reasonable cost. We could also incur significantly higher costs and experience longer lead times should we be required to reopen or replace our primary distribution center, the third party distribution manager or the manufacturing facility. As a result, any serious disruption could have a material adverse effect on our business, financial condition and results of operations.

Our risks associated with doing business internationally increase as we expand our international footprint.

During 2018, 2017, and 2016, approximately 8.8%, 8.4% and 7.4%, respectively, of our total revenues were attributable to our international business.  As of July 1, 2013, we acquired Care Pharmaceuticals, which markets and sells healthcare products in Australia. On April 30, 2014, we acquired the Hydralyte brand in Australia and New Zealand. On February 5, 2016, we acquired DenTek, which increases our geographic reach in parts of Europe. In addition, on January 26, 2017, we acquired Fleet, which has operations in Singapore. We generally rely on brokers and distributors for the sale of our products in foreign countries. In addition, some of our third party manufacturers are located outside the United States. Risks of doing business internationally include:

Political instability or declining economic conditions in the countries or regions where we operate that adversely affect sales of our products;

Currency controls that restrict or prohibit the payment of funds or the repatriation of earnings to the United States;

Fluctuating foreign exchange rates that result in unfavorable increases in the price of our products or cause increases in the cost of certain products purchased from our foreign third-party manufacturers;


17



Compliance with laws and regulations concerning ethical business practices;

Trade restrictions and exchange controls;

Difficulties in staffing and managing international operations;

Difficulty in protecting our intellectual property rights in these markets; and

Increased costs of compliance with general business and tax regulations in these countries or regions.

If new products and product line extensions do not gain widespread customer acceptance or are otherwise discontinued, the Company's financial performance could be impacted.

The Company's future performance and growth depends on its ability to successfully develop and introduce new products and product line extensions. We cannot be certain that we will achieve our innovation goals. The successful development and introduction of new products involves substantial research, development, marketing and promotional expenditures, which the Company may be unable to recover if the new products do not gain widespread market acceptance. New product development and marketing efforts, including efforts to enter markets or product categories in which the Company has limited or no prior experience, have inherent risks. These risks include product development or launch delays, competitor actions, regulatory approval hurdles and the failure of new products and line extensions to achieve anticipated levels of market acceptance.

Regulatory matters governing our industry could have a significant negative effect on our sales and operating costs.

In both the United States and in our foreign markets, our operations are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints.  Such laws, regulations and other constraints exist at the federal, state and local levels in the United States and at analogous levels of government in foreign jurisdictions.

The formulation, manufacturing, packaging, labeling, distribution, importation, marketing, sale and storage of our products are subject to extensive regulation by various U.S. federal agencies, including the FDA, FTC and CPSC, the EPA, and by various agencies of the states, localities and foreign countries in which our products are manufactured, distributed, stored and sold.  The FDC Act and FDA regulations require that the manufacturing processes of our facilities and third-party manufacturers of U.S. products must also comply with the FDA’s GMPs.  The FDA inspects our facilities and those of our third-party manufacturers periodically to determine if we and our third-party manufacturers are complying with GMPs. The health regulatory bodies of other countries have their own regulations and standards, which may or may not be consistent with the U.S. FDA GMPs.  A history of general compliance in the past is not a guarantee that future GMPs will not mandate other compliance steps and associated expense.

If we or our third-party manufacturers or distributors fail to comply with applicable regulations, we could become subject to enforcement actions, significant penalties or claims, which could materially adversely affect our business, financial condition and results of operations.  In addition, we could be required to:

Suspend manufacturing operations;

Modify product formulations or processes;

Suspend the sale or require a recall of products with non-complying specifications; or

Change product labeling, packaging, marketing, or advertising, recall non-compliant products, or take other corrective action.

The adoption of new regulations or changes in the interpretation of existing regulations may result in significant compliance costs or the cessation of product sales and may adversely affect the marketing of our products, which could have a material adverse effect on our financial condition and results of operations. For example, although our Virginia manufacturing facility had passed audits by Brazilian regulators in the past, it was audited in 2017 and deemed noncompliant with Brazilian standards as to the manufacture of one of the products. As a result, the regulators required a recall of a specific product on the Brazilian market. We do not believe this event will have a material adverse impact on our business or results but future audits may impact other products or markets in the future. As with any such matter, we complete a risk analysis to mitigate the potential for impact beyond the affected market.


18



In addition, our failure to comply with FDA, FTC, EPA or any other federal and state regulations, or with similar regulations in foreign markets, that cover our product registration, product claims and advertising, including direct claims and advertising by us, may result in enforcement actions and imposition of penalties, litigation by private parties, or otherwise materially adversely affect the distribution and sale of our products, which could have a material adverse effect on our business, financial condition and results of operations.

Product liability claims and product recalls and related negative publicity could adversely affect our sales and operating results.

We are dependent on consumers’ perception of the safety and quality of our products. Negative consumer perception may arise from product liability claims and product recalls, regardless of whether such claims or recalls involve us or our products. The mere publication of information asserting concerns about the safety of our products or the ingredients used in our products could have a material adverse effect on our business and results of operations. For example, some of our products contain the active ingredient acetaminophen, which is a pain reliever and fever reducer. We believe our products are safe and effective when used in accordance with label directions. However, adverse publicity about acetaminophen or other ingredients used in our products may discourage consumers from buying our products containing those ingredients, which would have an adverse impact on our sales.

From time to time we are subjected to various product liability claims.  Claims could be based on allegations that, among other things, our products contain contaminants, include inadequate instructions or warnings regarding their use or include inadequate warnings concerning side effects and interactions with other substances.  Whether or not successful, product liability claims could result in negative publicity that could adversely affect the reputation of our brands and our business, sales and operating results.  Additionally, we may be required to pay for losses or injuries purportedly caused by our products.  In addition, we could be required for a variety of reasons to initiate product recalls, which we have done on several occasions. Any product recalls could have a material adverse effect on our business, financial condition and results of operations.

In addition, although we maintain, and require our suppliers and third-party manufacturers to maintain, product liability insurance coverage, potential product liability claims may exceed the amount of insurance coverage or may be excluded under the terms of the policy, which could have a material adverse effect on our financial condition.  In addition, in the future we may not be able to obtain adequate insurance coverage or we may be required to pay higher premiums and accept higher deductibles in order to secure adequate insurance coverage.

If we are unable to protect our intellectual property rights, our ability to compete effectively in the market for our products could be negatively impacted.

The market for our products depends to a significant extent upon the goodwill associated with our trademarks, tradenames and patents.  Our trademarks and tradenames convey that the products we sell are “brand name” products.  We believe consumers ascribe value to our brands, some of which are over 100 years old.  We own or license the material trademarks, tradenames and patents used in connection with the packaging, marketing and sale of our products.  These rights prevent our competitors or new entrants to the market from using our valuable brand names and technologies.  Therefore, trademark, tradename and patent protection is critical to our business.  Although most of our material intellectual property is registered in the United States and in applicable foreign countries, we may not be successful in asserting protection.  If we were to lose the exclusive right to use one or more of our intellectual property rights, the loss of such exclusive right could have a material adverse effect on our financial condition and results of operations.

In addition, other parties may infringe on our intellectual property rights and may thereby dilute the value of our brands in the marketplace.  Brand dilution could cause confusion in the marketplace and adversely affect the value that consumers associate with our brands, which could negatively impact our business and sales.  In addition, third parties may assert claims against our intellectual property rights, and we may not be able to successfully resolve those claims, which would cause us to lose the right to use the intellectual property subject to those claims.  Such loss could have a material adverse effect on our financial condition and results of operations.  Furthermore, from time to time, we may be involved in litigation in which we are enforcing or defending our intellectual property rights, which could require us to incur substantial fees and expenses and have a material adverse effect on our financial condition and results of operations.
 
We license certain of our trademarks to third party licensees, who are bound by their respective license agreements to protect our trademarks from infringement and adhere to defined quality requirements.  If a licensee of our trademarks fails to adhere to the contractually defined quality requirements, our business and financial results could be negatively impacted if one of our brands suffers a substantial impairment to its reputation due to real or perceived quality issues.  Further, if a licensee fails to protect one of our licensed trademarks from infringement, we might be required to take action, which could require us to incur substantial fees and expenses.

19




We depend on third parties for intellectual property relating to some of the products we sell, and our inability to maintain or enter into future license agreements may result in our failure to meet customer demand, which would adversely affect our operating results.

We have licenses or manufacturing agreements with third parties that own intellectual property (e.g., formulae, copyrights, trademarks, trade dress, patents and other technology) used in the manufacture and sale of certain of our products.  In the event that any such license or manufacturing agreement expires or is otherwise terminated, we will lose the right to use the intellectual property covered by such license or agreement and will have to develop or obtain rights to use other intellectual property.  Similarly, our rights could be reduced if the applicable licensor or third-party manufacturer fails to maintain or protect the licensed intellectual property because, in such event, our competitors could obtain the right to use the intellectual property without restriction.  If this were to occur, we might not be able to develop or obtain replacement intellectual property in a timely or cost effective manner.  Additionally, any modified products may not be well-received by customers.  The consequences of losing the right to use or having reduced rights to such intellectual property could negatively impact our sales due to our failure to meet consumer demand for the affected products or require us to incur costs for the development of new or different intellectual property, either of which could have a material adverse effect on our business, financial condition and results of operations.  In addition, development of replacement products may be time-consuming and ultimately may not be feasible.

Virtually all of our assets consist of goodwill and intangible assets and are subject to impairment risk.

As our financial statements indicate, virtually all of our assets consist of goodwill and intangible assets, principally the trademarks, tradenames and patents that we have acquired.  On an annual basis, and otherwise when there is evidence that events or changes in circumstances indicate that the carrying value of intangible assets might not be recoverable, we assess the potential impairment of our goodwill and other intangible assets. Upon any such evaluation, we may be required to record a significant charge in our financial statements, which would negatively impact our financial condition and results of operations. We recorded non-cash impairment charges in 2018, 2010 and 2009 for certain assets.  If any of our brands sustain significant or prolonged declines in revenues or profitability or performance not in line with our expectations, the carrying value may no longer be recoverable, in which case a non-cash impairment charge may be recorded in future periods. For example, if the Company’s brand performance is weaker than projections used in valuation calculations, the value of such brands may become impaired. In the event that such analysis would result in the fair value being lower than the carrying value, we would be required to record an impairment charge. Although we experienced revenue declines in certain brands in the past, we continue to believe that the fair value of our brands exceed their carrying values as adjusted. However, sustained or significant future declines in revenue, profitability, lost distribution, other adverse changes in expected operating results, and/or unfavorable changes in economic factors used to estimate fair value of certain brands could indicate that the fair value no longer exceeds the carrying value, in which case a non-cash impairment charge may be recorded in future periods. Should the value of those assets or other assets become further impaired or our financial condition is materially adversely affected in any way, we would not have tangible assets that could be sold to repay our liabilities. As a result, our creditors and investors may not be able to recoup the amount of the indebtedness that they have extended to us or the amount they have invested in us.

We depend on our key personnel, and the loss of the services provided by any of our executive officers or other key employees could harm our business and results of operations.

Our success depends to a significant degree upon the continued contributions of our senior management.  These employees may voluntarily terminate their employment with us at any time.  We may not be able to successfully retain existing personnel or identify, hire and integrate new personnel.  While we believe we have developed depth and experience among our key personnel, our business may be adversely affected if one or more of these key individuals were to leave.  We do not maintain any key-man or similar insurance policies covering any of our senior management or key personnel.

Our indebtedness could adversely affect our financial condition, and the significant amount of cash we need to service our debt would not be available to reinvest in our business.

At March 31, 2018, our total indebtedness, including current maturities, was approximately $2.0 billion.

Our indebtedness could:

Increase our vulnerability to general adverse economic and industry conditions;

Limit our ability to engage in strategic acquisitions;


20



Require us to dedicate a substantial portion of our cash flow from operations toward repayment of our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes;

Limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate;

Place us at a competitive disadvantage compared to our competitors that have less debt; and

Limit, among other things, our ability to borrow additional funds on favorable terms or at all.

The terms of the indentures governing our 6.375% senior notes due March 1, 2024 (the "2016 Senior Notes") and our 5.375% senior unsecured notes due December 15, 2021 (the "2013 Senior Notes"), and the credit agreement governing the 2012 Term Loan and 2012 ABL Revolver, allow us to issue and incur additional debt only upon satisfaction of the conditions set forth in those respective agreements.  If new debt is added to current debt levels, the related risks described above could increase.

At March 31, 2018, we had $96.6 million of borrowing capacity available under the 2012 ABL Revolver to support our operating activities.

Our operating flexibility is limited in significant respects by the restrictive covenants in our senior credit facility and the indentures governing our senior notes.
 
Our senior credit facility and the indentures governing our senior notes impose restrictions that could impede our ability to enter into certain corporate transactions, as well as increase our vulnerability to adverse economic and industry conditions, by limiting our flexibility in planning for, and reacting to, changes in our business and industry.  These restrictions limit our ability to, among other things:

Borrow money or issue guarantees;

Pay dividends, repurchase stock from, or make other restricted payments to, stockholders;

Make investments or acquisitions;

Use assets as security in other transactions;

Sell assets or merge with or into other companies;

Enter into transactions with affiliates;

Sell stock in our subsidiaries; and

Direct our subsidiaries to pay dividends or make other payments to us.

Our ability to engage in these types of transactions is generally limited by the terms of the senior credit facility and the indentures governing the senior notes, even if we believe that a specific transaction would positively contribute to our future growth, operating results or profitability.  

In addition, our senior credit facility requires us to maintain certain leverage, interest coverage and fixed charge ratios.  Although we believe we can continue to meet and/or maintain the financial covenants contained in our credit agreement, our ability to do so may be affected by events outside our control.  Covenants in our senior credit facility also require us to use 100% of the proceeds we receive from debt issuances to repay outstanding borrowings under our senior credit facility.  Any failure by us to comply with the terms and conditions of the credit agreement and the indentures governing the senior notes could result in an event of default, which may allow our creditors to accelerate our debt and therefore have a material adverse effect on our financial condition.


21



The senior credit facility and the indentures governing the senior notes contain cross-default provisions that could result in the acceleration of all of our indebtedness.

The senior credit facility and the indentures governing the senior notes contain provisions that allow the respective creditors to declare all outstanding borrowings under one agreement to be immediately due and payable as a result of a default under another agreement.  Consequently, failure to make a payment required by the indentures governing the senior notes, among other things, may lead to an event of default under the senior credit facility.  Similarly, an event of default or failure to make a required payment at maturity under the senior credit facility, among other things, may lead to an event of default under the indentures governing the senior notes.  If the debt under the senior credit facility and indentures governing the senior notes were to both be accelerated, the aggregate amount immediately due and payable as of March 31, 2018 would have been approximately $2.0 billion.  We presently do not have sufficient liquidity to repay these borrowings in the event they were to be accelerated, and we may not have sufficient liquidity in the future to do so.  Additionally, we may not be able to borrow money from other lenders to enable us to refinance our indebtedness.  At March 31, 2018, the book value of our current assets was $303.5 million.  Although the book value of our total assets was $3,760.6 million, approximately $3,401.0 million was in the form of intangible assets, including goodwill of $620.1 million, a significant portion of which may not be available to satisfy our creditors in the event our debt is accelerated.

Any failure to comply with the restrictions of the senior credit facility, the indentures governing the senior notes or any other subsequent financing agreements may result in an event of default.  Such default may allow the creditors to accelerate the related debt, as well as any other debt to which the cross-acceleration or cross-default provisions apply.  In addition, the lenders may be able to terminate any commitments they had made to supply us with additional funding.  As a result, any default by us under our credit agreement, indentures governing the senior notes or any other financing agreement could have a material adverse effect on our financial condition.

Litigation may adversely affect our business, financial condition and results of operations.

Our business is subject to the risk of, and from time to time in the ordinary course of business we are involved in, litigation by employees, customers, consumers, suppliers, competitors, regulators, stockholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation.  The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify.  Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time.  The cost to defend current and future litigation may be significant.  There may also be adverse publicity associated with litigation that could decrease customer acceptance of our products, regardless of whether the allegations are valid or whether we are ultimately found liable. For example, although our marketing is evidence-based, consumers and competitors may challenge, and have challenged, certain of our marketing claims by alleging, among other things, false and misleading advertising with respect to advertising for certain of our products. Such challenges could result in our having to pay monetary damages or limit our ability to maintain current marketing claims. Conversely, we have, and may be required in the future to initiate litigation against others to protect the value of our intellectual property and the related goodwill or enforce an agreement or contract that has been breached.  These matters may be time consuming and expensive, but may be necessary to protect our assets and realize the benefits of the agreements and contracts that we have negotiated.  As a result, litigation may adversely affect our business, financial condition and results of operations.

The trading price of our common stock may be volatile.

The trading price of our common stock could be subject to significant fluctuations in response to several factors, some of which are beyond our control, including (i) general stock market volatility, (ii) variations in our quarterly operating results, (iii) our leveraged financial position, (iv) potential sales of additional shares of our common stock, (v) perceptions associated with the identification of material weaknesses in internal control over financial reporting, (vi) general trends in the consumer products industry, (vii) changes by securities analysts in their estimates or investment ratings, (viii) the relative illiquidity of our common stock, (ix) voluntary withdrawal or recall of products, (x) news regarding litigation in which we are or become involved, (xi) potential changes in demand for common stock related to the Company's inclusion in the S&P MidCap 400 index, and (xii) general marketplace conditions brought on by economic recession.

We have no current intention of paying dividends to holders of our common stock.

We presently intend to retain our earnings, if any, for use in our operations, to facilitate strategic acquisitions, to repurchase our common stock, or to repay our outstanding indebtedness and have no current intention of paying dividends to holders of our common stock.  In addition, our debt instruments limit our ability to declare and pay cash dividends on our common stock.  As a result, a shareholder's only opportunity to achieve a return on their investment in our common stock will be if the market price of our common stock appreciates and they sell their shares at a profit.

22




Our annual and quarterly results of operations may fluctuate significantly and could fall below the expectations of securities analysts and investors due to a number of factors, many of which are beyond our control, resulting in a decline in the price of our securities.

Our annual and quarterly results of operations may fluctuate significantly because of numerous factors, including:

The timing of when we make acquisitions or introduce new products;

Our inability to increase the sales of our existing products and expand their distribution;

The timing of the introduction or return to the market of competitive products and the introduction of store brand products;

Inventory management resulting from consolidation among our customers;

Adverse regulatory or market events in the United States or in our international markets;

Changes in consumer preferences, spending habits and competitive conditions, including the effects of competitors’ operational, promotional or expansion activities;

Seasonality of our products;

Fluctuations in commodity prices, product costs, utilities and energy costs, prevailing wage rates, insurance costs and other costs;

The discontinuation and return of our products from retailers;

Our ability to recruit, train and retain qualified employees, and the costs associated with those activities;

Changes in advertising and promotional activities and expansion to new markets;

Negative publicity relating to us and the products we sell;

Litigation matters;

Unanticipated increases in infrastructure costs;

Impairment of goodwill or long-lived assets;

Changes in interest rates; and

Changes in accounting, tax, regulatory or other rules applicable to our business.

Our quarterly operating results and revenues may fluctuate as a result of any of these or other factors. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year, and revenues for any particular future period may decrease.  In the future, operating results may fall below the expectations of securities analysts and investors.  In that event, the market price of our outstanding securities could be adversely impacted.

Provisions in our amended and restated certificate of incorporation and Delaware law may discourage potential acquirers of our company, which could adversely affect the value of our securities.

Our amended and restated certificate of incorporation provides that our Board of Directors is authorized to issue from time to time, without further stockholder approval, up to five million shares of preferred stock in one or more series of preferred stock issuances.  Our Board of Directors may establish the number of shares to be included in each series of preferred stock and determine, as applicable, the voting and other powers, designations, preferences, rights, qualifications, limitations and restrictions for such series of preferred stock.  The shares of preferred stock could have preferences over our common stock with respect to dividends and liquidation rights.  We may issue additional preferred stock in ways which may delay, defer or prevent a change in control of the Company without further action by our stockholders.  The shares of preferred stock may be issued with voting rights that may

23



adversely affect the voting power of the holders of our common stock by increasing the number of outstanding shares having voting rights, and by the creation of class or series voting rights.

Our amended and restated certificate of incorporation, as amended, contains additional provisions that may have the effect of making it more difficult for a third party to acquire or attempt to acquire control of our company.  In addition, we are subject to certain provisions of Delaware law that limit, in some cases, our ability to engage in certain business combinations with significant stockholders.

These provisions, either alone, or in combination with each other, give our current directors and executive officers the ability to significantly influence the outcome of a proposed acquisition of the Company.  These provisions would apply even if an acquisition or other significant corporate transaction was considered beneficial by some of our stockholders.  If a change in control or change in management is delayed or prevented by these provisions, the market price of our outstanding securities could be adversely impacted.

We rely significantly on information technology. Any inadequacy, interruption, theft or loss of data, malicious attack, integration failure, failure to maintain the security, confidentiality or privacy of sensitive data residing on our systems or other security failure of that technology could harm our ability to effectively operate our business and damage the reputation of our brands.

The Company relies extensively on information technology systems, some of which are managed by third-party service providers, to conduct its business. We rely on our information technology systems (some of which are outsourced to third parties) to manage the data, communications and business processes for all of our functions, including our marketing, sales, manufacturing, logistics, customer service, accounting and administrative functions. These systems include, but are not limited to, programs and processes relating to internal communications and communications with other parties, ordering and managing materials from suppliers, converting materials to finished products, shipping product to customers, billing customers and receiving and applying payment, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, collecting and storing customer, consumer, employee, investor, and other stakeholder information and personal data, and other processes necessary to manage the Company's business.

Increased information technology security threats and more sophisticated computer crime, including advanced persistent threats, pose a potential risk to the security of the information technology systems, networks, and services of the Company, its customers and other business partners, as well as the confidentiality, availability, and integrity of the data of the Company, its customers and other business partners. As a result, the Company's information technology systems, networks or service providers could be damaged or cease to function properly or the Company could suffer a loss or disclosure of business, personal or stakeholder information, due to any number of causes, including catastrophic events, power outages and security breaches. The Company has conducted regular security audits by an outside firm to address any potential service interruptions or vulnerabilities. However, if these plans do not provide effective protection, the Company may suffer interruptions in its ability to manage or conduct its operations, which may adversely affect its business. The Company may need to expend additional resources in the future to continue to protect against, or to address problems caused by, any business interruptions or data security breaches.

Any breach of our data security could result in an unauthorized release or transfer of customer, consumer, user or employee information, or the loss of valuable business data or cause a disruption in our business. These events could give rise to unwanted media attention, damage our reputation, damage our customer, consumer or user relationships and result in lost sales, fines or lawsuits or adversely impact the Company's results of operations and financial condition. We may also be required to expend significant capital and other resources to protect against or respond to or alleviate problems caused by a security breach. If we are unable to prevent material failures, our operations may be impacted, and we may suffer other negative consequences such as reputational damage, litigation, remediation costs and/or penalties under various data privacy laws and regulations.

Our information technology systems may be susceptible to disruptions.

We utilize information technology systems to improve the effectiveness of our operations and support our business, including systems to support financial reporting and an enterprise resource planning system. During post-production and future enterprise resource planning phases, we could be subject to transaction errors, processing inefficiencies and other business disruptions that could lead to the loss of revenue or inaccuracies in our financial information. The occurrence of these or other challenges could disrupt our information technology systems and adversely affect our operations.

Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.


24



Our provision for income taxes is subject to volatility and could be adversely affected by several factors, some of which are outside of our control, including:

Changes in the income allocation methods for state taxes, and the determination of which states or countries have jurisdiction to tax our Company;

An increase in non-deductible expenses for tax purposes, including certain stock-based compensation, executive compensation and impairment of goodwill;

Transfer pricing adjustments;

Tax assessments resulting from tax audits or any related tax interest or penalties that could significantly affect our income tax provision for the period in which the settlement takes place;

A change in our decision to indefinitely reinvest foreign earnings;

Tax liabilities from acquired businesses;

Changes in accounting principles; and
  
Changes in tax laws or related interpretations, accounting standards, regulations, and interpretations in multiple tax jurisdictions in which we operate.

Significant judgment is required to determine the recognition and measurement of the attributes prescribed in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740. As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. Our effective tax rate is dependent upon the availability of tax credits and carryforwards. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and/or our effective income tax rate.

In addition, we may be subject to examination of our income tax returns by the Internal Revenue Service and other tax authorities. If tax authorities challenge the relative mix of our U.S. and international income, or successfully assert the jurisdiction to tax our earnings, our future effective income tax rates could be adversely affected.

The impacts of the Tax Cuts and Jobs Act ("Tax Act") could be materially different from our current estimates.
 
The Tax Act was signed into law in December 2017, which represents significant U.S. federal tax reform legislation that includes a permanent reduction to the U.S. federal corporate income tax rate. We expect the new law to significantly reduce our tax rate in future periods.  In 2018, our tax provision reflects the benefit of the Federal tax rate reduction due to the one-time revaluation of our deferred tax liabilities and a charge related to the forced foreign repatriation tax. The changes included in the Tax Act are broad and complex. The final transitional impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates we have utilized to calculate the transitional impacts. The Commission has issued guidance that allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of the measurement period.

ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.

 

25



ITEM 2. PROPERTIES
                    
Our corporate headquarters is located in Tarrytown, New York, a suburb of New York City.  Primary functions performed at the Tarrytown facility include marketing, sales, operations, quality control, regulatory affairs, finance, information technology and legal.  We believe our Tarrytown facility is adequate for these functions, and the lease expires on December 31, 2027.  

We lease office space in Roger, Arkansas, primarily to perform sales functions, which expires on December 1, 2020. We also lease office space for a sales office in Northbrook, Illinois, which expires on January 31, 2022.

We lease office space located in Australia. Primary functions performed at that location include marketing, sales, operations, quality control, regulatory affairs, and finance. The lease for our Australia facility expires on April 30, 2022.

We lease an office in Germany where inventory and account management and invoicing are performed. This lease expires on January 31, 2019.

We lease an office in the UK that performs marketing, operations and finance functions for our UK business. The lease expires on July 29, 2021.

We also lease an office in Singapore, which expires on October 31, 2019, and a sales office in China, which lease expires on July 31, 2018. We plan to renew this lease through August 31, 2019.

In addition, we have a lease for office space in New Jersey which expires on February 11, 2021. This facility is currently being subleased, and the sublease expires on February 10, 2021.

As a result of the acquisition of Fleet, we own an office and manufacturing facility in Lynchburg, Virginia.

All of our facilities serve the North American OTC Healthcare, International OTC Healthcare, and Household Cleaning segments.
  
ITEM 3. LEGAL PROCEEDINGS

We are involved from time to time in routine legal matters and other claims incidental to our business.  We review outstanding claims and proceedings internally and with external counsel as necessary to assess probability and amount of potential loss.  These assessments are re-evaluated at each reporting period and as new information becomes available to determine whether a reserve should be established or if any existing reserve should be adjusted.  The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded reserve.  In addition, because it is not permissible under GAAP to establish a litigation reserve until the loss is both probable and estimable, in some cases there may be insufficient time to establish a reserve prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement).  We believe the resolution of routine matters and other incidental claims, taking our reserves into account, will not have a material adverse effect on our business, financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

None.

26



Part II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is listed on The New York Stock Exchange (“NYSE”) under the symbol “PBH.”  The high and low sales prices of our common stock as reported by the NYSE for the two most recently completed fiscal years on a quarterly basis and the current year through May 4, 2018 are as follows:

 
 
High
 
Low
Year Ending March 31, 2019
 
 
 
 
     April 1, 2018 - May 4, 2018
 
$
34.38

 
$
27.87

 
 
 
 
 
Year Ending March 31, 2018
 
 
 
 
Quarter Ended:
 
 
 
 
June 30, 2017
 
$
59.63

 
$
48.96

September 30, 2017
 
53.90

 
48.23

December 31, 2017
 
51.80

 
40.11

March 31, 2018
 
46.44

 
32.46

 
 
 
 
 
Year Ending March 31, 2017
 
 
 
 
Quarter Ended:
 
 
 
 
June 30, 2016
 
$
58.09

 
$
51.68

September 30, 2016
 
57.34

 
46.21

December 31, 2016
 
52.89

 
44.64

March 31, 2017
 
58.08

 
51.02


Holders

As of May 4, 2018, there were 36 holders of record of our common stock.  The number of record holders does not include beneficial owners whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

Dividend Policy

Common Stock
We have not in the past paid, and do not expect for the foreseeable future to pay, cash dividends on our common stock.  Instead, we anticipate that all of our earnings in the foreseeable future will be used in our operations, to facilitate strategic acquisitions, to repurchase our common stock, or to pay down our outstanding indebtedness.  Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend, among other factors, on our results of operations, financial condition, capital requirements and contractual restrictions limiting our ability to declare and pay cash dividends, including restrictions under our 2012 Term Loan and the indentures governing our senior notes, and any other considerations our Board of Directors deems relevant.

Part III, Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" of this Annual Report on Form 10-K is incorporated herein by reference.

27



PERFORMANCE GRAPH

The following graph (“Performance Graph”) compares our cumulative total stockholder return since March 31, 2013, with the cumulative total stockholder return for the Standard & Poor's MidCap 400 Index, the Russell 2000 Index and our peer group index. The Company is included in each of the Standard & Poor's MidCap 400 Index and the Russell 2000 Index.  The Performance Graph assumes that the value of the investment in the Company’s common stock and each index was $100.00 on March 31, 2013.  The Performance Graph was also prepared based on the assumption that all dividends paid, if any, were reinvested.  The Peer Group Index is a self-constructed peer group consisting of companies in the consumer products industry with comparable revenues and market capitalization, from which the Company has been excluded. 

newgraph.jpg

 
March 31,
Company/Market/Peer Group
2013
 
2014
 
2015
 
2016
 
2017
 
2018
Prestige Brands Holdings, Inc.
$
100.00

 
$
106.07

 
$
166.95

 
$
207.82

 
$
216.27

 
$
131.26

Russell 2000 Index
100.00

 
124.90

 
135.15

 
121.96

 
153.94

 
172.09

S&P MidCap 400 Index
100.00

 
121.24

 
136.03

 
131.14

 
158.57

 
175.97

New Peer Group Index (1)
100.00

 
119.98

 
157.68

 
150.83

 
144.68

 
136.53

Old Peer Group Index (2)
100.00

 
126.65

 
192.01

 
175.94

 
181.78

 
194.19


(1)
The New Peer Group Index is a self-constructed peer group consisting of companies in the consumer products industry with comparable revenues and market capitalization, from which the Company has been excluded.  The new peer group index is comprised of: (i) B&G Food Holdings Corp., (ii) Hain Celestial Group, Inc., (iii) Church & Dwight Co., Inc., (iv) Helen of Troy, Ltd., (v) Vista Outdoor, (vi) Impax Laboratories, Inc., (vii) Revlon, Inc., (viii) Lancaster Colony Corp, (ix) Edgewell Personal Care Company, (x) Energizer Holdings, Inc. and (xi) Calavo Growers, Inc.

(2)
The Old Peer Group Index is a self-constructed peer group consisting of companies in the consumer products industry with comparable revenues and market capitalization, from which the Company has been excluded.  The old peer group index is comprised of: (i) B&G Food Holdings Corp., (ii) Hain Celestial Group, Inc., (iii) Church & Dwight Co., Inc., (iv) Helen of Troy, Ltd., (v) Monster Beverage Corp., (vi) Impax Laboratories, Inc., (vii) Snyders-Lance Inc., (viii) Revlon, Inc., (ix) Lancaster Colony Corp, (x) Akorn, Inc., (xi) Edgewell Personal Care Company, (xii) Energizer Holdings, Inc. and (xiii) Calavo Growers, Inc.

28




The Performance Graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.

29



ITEM 6. SELECTED FINANCIAL DATA

The following table furnishes selected consolidated financial data for the five years ended March 31, 2018. This selected consolidated financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.
                   
(In thousands, except per share data)
Year Ended March 31,
 
2018

2017

2016

2015

2014
Income Statement Data
 
 
 
 
 
 
 
 
 
Total revenues
$
1,041,179

 
$
882,060

 
$
806,247

 
$
714,623

 
$
597,381

Cost of Sales
 
 
 
 
 
 
 
 
 
Cost of sales excluding depreciation
459,676

 
381,333

 
339,036

 
308,400

 
261,830

Cost of sales depreciation
4,998

 
441

 

 

 

Cost of sales (1)
464,674

 
381,774

 
339,036

 
308,400

 
261,830

Gross profit
576,505

 
500,286

 
467,211

 
406,223

 
335,551

 
 
 
 
 
 
 
 
 
 
Advertising and promotion (2)
147,286

 
128,359

 
110,802

 
99,651

 
84,968

General and administrative (3)
85,001

 
89,143

 
72,418

 
81,273

 
48,481

Depreciation and amortization
28,428

 
25,351

 
23,676

 
17,740

 
13,486

Loss on divestitures

 
51,820

 

 

 

Tradename impairment
99,924

 

 

 

 

Interest expense, net (4)
105,879

 
93,343

 
85,160

 
81,234

 
68,582

Gain on sale of asset

 

 

 
(1,133
)
 

Loss on extinguishment of debt
2,901

 
1,420

 
17,970

 

 
18,286

Income before income taxes
107,086

 
110,850

 
157,185

 
127,458

 
101,748

(Benefit) provision for income taxes
(232,484
)
 
41,455

 
57,278

 
49,198

 
29,133

Net Income
$
339,570

 
$
69,395

 
$
99,907

 
$
78,260

 
$
72,615

 
 
 
 
 
 
 
 
 
 
Earnings Per Share:
 

 
 
 
 
 
 
 
 
    Basic
$
6.40

 
$
1.31

 
$
1.89

 
$
1.50

 
$
1.41

    Diluted
$
6.34

 
$
1.30

 
$
1.88

 
$
1.49

 
$
1.39

 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 

 
 

 
 

 
 

 
 

    Basic
53,099

 
52,976

 
52,754

 
52,170

 
51,641

    Diluted
53,526

 
53,362

 
53,143

 
52,670

 
52,349

 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
7,037

 
(2,827
)
 
(113
)
 
(24,151
)
 
843

Comprehensive income
$
346,607

 
$
66,568

 
$
99,794

 
$
54,109

 
$
73,458

 



30



 
Year Ended March 31,
Other Financial Data
2018

2017

2016

2015

2014
Capital expenditures
$
12,532

 
$
2,977

 
$
3,568

 
$
6,101

 
$
2,764

Cash provided by (used in):
 

 
 

 
 

 
 

 
 

Operating activities (5)
210,110

 
148,672

 
176,310

 
157,585

 
113,232

Investing activities
(11,562
)
 
(694,595
)
 
(222,971
)
 
(805,258
)
 
(57,976
)
Financing activities (5)
(208,955
)
 
560,957

 
52,076

 
641,935

 
(42,803
)
 
 
 
 
 
 
 
 
 
 
 
March 31,
Balance Sheet Data
2018

2017

2016

2015

2014
Cash and cash equivalents
$
32,548

 
$
41,855

 
$
27,230

 
$
21,318

 
$
28,331

Total assets
3,760,612

 
3,911,348

 
2,948,791

 
2,641,967

 
1,773,773

Total long-term debt, including current maturities
2,013,000

 
2,222,000

 
1,652,500

 
1,593,600

 
937,500

Stockholders’ equity
1,178,610

 
822,549

 
744,336

 
627,624

 
563,360


(1)
For 2018, 2017, 2016, 2015 and 2014, cost of sales included $3.7 million, $3.0 million, $1.4 million, $2.2 million and $0.6 million, respectively, of charges related to inventory step-up and other costs associated with acquisitions.
(2)
For 2018 and 2017, advertising and promotion expense included a credit of $0.2 million and a charge of $2.2 million, respectively, related to the integration of the Fleet acquisition.
(3)
For 2018, 2017, 2016, 2015, and 2014, general and administrative expense included $2.7 million, $16.0 million, $2.4 million, $13.9 million, and $1.1 million, respectively, of costs related to acquisitions. For 2018, general and administrative expense also includes a tax adjustment associated with acquisitions of $0.7 million. For 2016, an additional $1.4 million of costs associated with a Chief Executive Officer transition was included in general and administrative expense.
(4)
For 2018, interest expense, net included $0.4 million of accelerated amortization of debt costs associated with funds received from the repatriation of foreign earnings used to pay down debt and $0.3 million of additional interest expense as a result of the Term Loan refinancing. For 2017, interest expense, net included $8.3 million of bank commitment fees related to the recently acquired Fleet business.
(5)
In accordance with Accounting Standards Update ("ASU") 2016-09, Compensation - Stock Compensation (Topic 718), we have reclassified cash flows related to excess tax benefits from share-based awards from a financing activity to an operating activity. The reclassification was not material.


31



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with the “Selected Financial Data” and the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K.  This discussion and analysis may contain forward-looking statements that involve certain risks, assumptions and uncertainties that could cause actual results to differ materially from those implied or described by the forward-looking statements.  Future results could differ materially from the discussion that follows for many reasons, including the factors described in Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K, as well as those described in future reports filed with the SEC.

General
We are engaged in the development, manufacturing, marketing, sales and distribution of well-recognized, brand name OTC healthcare and household cleaning products to mass merchandisers and drug, food, dollar, convenience, and club stores in North America (the United States and Canada) and in Australia and certain other international markets.  We use the strength of our brands, our established retail distribution network, a low-cost operating model and our experienced management team to create our competitive advantage.

We have grown our product portfolio both organically and through acquisitions. We develop our existing brands by investing in new product lines, brand extensions and strong advertising support. Acquisitions of OTC brands have also been an important part of our growth strategy. We have acquired strong and well-recognized brands from consumer products, pharmaceutical and private equity companies. While certain of these brands have long histories of brand development and investment, we believe that, at the time we acquired them, most were considered “non-core” by their previous owners. As a result, these acquired brands did not benefit from adequate management focus and marketing support during the period prior to their acquisition, which created opportunities for us to reinvigorate these brands and improve their performance post-acquisition. After adding a core brand to our portfolio, we seek to increase its sales, market share and distribution in both existing and new channels through our established retail distribution network.  We pursue this growth through increased spending on advertising and promotional support, new sales and marketing strategies, improved packaging and formulations and innovative development of brand extensions.

Tax Reform
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("Tax Act"). The Tax Act represents significant U.S. federal tax reform legislation that includes a permanent reduction to the U.S. federal corporate income tax rate. The permanent reduction to the federal corporate income tax rate resulted in a one-time gain of $267.0 million related to the value of our deferred tax liabilities and a gain of $3.2 million related to the lower blended tax rate on our current year earnings, resulting in a net gain of $270.2 million. Additionally, the tax reform legislation subjects certain of our cumulative foreign earnings and profits to U.S. income taxes through a deemed repatriation, which resulted in a charge of $1.9 million during 2018.

The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries. The U.S. Securities and Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts.

Acquisitions
Acquisition of Fleet
On January 26, 2017, the Company completed the acquisition of Fleet pursuant to the Agreement and Plan of Merger, dated as of December 22, 2016, for $823.7 million plus cash on hand at closing and subject to certain adjustments related to net working capital. The purchase price was funded by available cash on hand, additional borrowings under the 2012 ABL Revolver, and a new $740.0 million senior secured incremental term loan under the 2012 Term Loan. As a result of the merger, we acquired women's health, gastrointestinal and dermatological care OTC brands, including Summer’s Eve, Fleet, and Boudreaux's Butt Paste, as well as a “mix and fill” manufacturing facility in Lynchburg, Virginia. The financial results from the Fleet acquisition are included in the Company's North American and International OTC Healthcare segments.

Acquisition of DenTek
On February 5, 2016, the Company completed the acquisition of DenTek, a privately-held marketer and distributor of specialty oral care products. The closing was finalized pursuant to the terms of the merger agreement, announced November 23, 2015, under which the Company agreed to acquire DenTek from its stockholders for a purchase price of $226.9 million. The acquisition

32



expanded the Company's portfolio of brands, strengthened its existing oral care platform and increased its geographic reach in parts of Europe. The Company financed the transaction with a combination of available cash on hand, available cash from its 2012 ABL Revolver, and financing of an additional unsecured bridge loan. The DenTek brands are included in our North American and International OTC Healthcare segments.

Acquisition of Insight Pharmaceuticals
On September 3, 2014, the Company completed the acquisition of Insight Pharmaceuticals Corporation ("Insight"), a marketer and distributor of feminine care and other OTC healthcare products, for $745.9 million in cash after receiving a return of approximately $7.2 million from escrow related to an arbitrator's ruling. The closing followed the FTC approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on April 25, 2014. Pursuant to the Insight purchase agreement, the Company acquired 27 OTC brands sold in North America (including related tradenames, contracts and inventory), which extended the Company's portfolio of OTC brands to include a leading feminine care platform in the United States and Canada anchored by Monistat, the leading North American brand in OTC yeast infection treatment. The acquisition also added brands to the Company's cough & cold, pain relief, ear care and dermatological platforms. In connection with the FTC's approval of the Insight acquisition, we sold one of the competing brands that we acquired from Insight on the same day as the Insight closing. Insight is primarily included in our North American OTC Healthcare segment.

Acquisition of the Hydralyte brand
On April 30, 2014, we completed the acquisition of the Hydralyte brand in Australia and New Zealand from The Hydration Pharmaceuticals Trust of Victoria, Australia, which was funded through a combination of cash on hand and our existing senior secured credit facility.

Hydralyte is the leading OTC brand in oral rehydration in Australia and is marketed and sold through our Care Pharma subsidiary. Hydralyte is available in pharmacies in multiple forms and is indicated for oral rehydration following diarrhea, vomiting, fever, heat and other ailments. Hydralyte is included in our International OTC Healthcare segment.

Divestitures and Sale of License Rights
On July 7, 2016, we completed the sale of the Pediacare®, New Skin® and Fiber Choice® brands for $40.0 million plus the cost of inventory. During the year ended March 31, 2017, we recorded a pre-tax loss on sale of $56.2 million. The proceeds were used to repay debt and related income taxes due on the dispositions.

Concurrent with the completion of the sale of these brands, we entered into a transitional services agreement with the buyer, whereby we agreed to provide the buyer with various services, including marketing, operations, finance and other services, from the date of the acquisition through January 7, 2017. We also entered into an option agreement with the buyer to purchase Dermoplast® at a specified earnings multiple as defined in the option agreement. The buyer paid a $1.25 million deposit for this option in September 2016 and later notified us of its election to exercise the option. In December 2016, we completed the sale of the Dermoplast® brand, and in a separate transaction, the e.p.t® brand, for an aggregate amount of $59.6 million. As a result, we recorded a pre-tax net gain on these divestitures of $3.9 million.

Historically, we received royalty income from the licensing of the names of certain of our brands in geographic areas or markets in which we do not directly compete. We have had royalty agreements for our Comet brand for several years, which included options on behalf of the licensee to purchase license rights in certain geographic areas and markets in perpetuity. In December 2014, we amended these agreements and we sold rights to use of the Comet brand in certain Eastern European countries to a third-party licensee in exchange for $10.0 million as a partial early buyout of the license. The amended agreement provided that we would continue to receive royalty payments of $1.0 million per quarter for the remaining geographic areas and also granted the licensee an option to acquire the license rights in the remaining geographic areas any time after June 30, 2016. In July 2016, the licensee elected to exercise its option. In August 2016, we received $11.0 million for the purchase of the remaining license rights and, as a result, we recorded a pre-tax gain of $1.2 million and reduced our indefinite-lived tradenames by $9.0 million. Furthermore, the licensee is no longer required to make additional royalty payments to us, and as a result, our royalty income was reduced accordingly.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in the notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.  While all significant accounting policies are important to our Consolidated Financial Statements, certain of these policies may be viewed as being critical.  Such policies are those that are both most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses or the related disclosure of contingent assets and liabilities.  These estimates are based on our historical experience and on various other assumptions that we believe to be reasonable

33



under the circumstances.  Actual results may differ materially from these estimates. The most critical accounting policies are as follows:

Revenue Recognition
We recognize revenue when the following revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists; (ii) the selling price is fixed or determinable; (iii) the product has been shipped and the customer takes ownership and assumes the risk of loss; and (iv) collection of the resulting receivable is reasonably assured.  We have determined that these criteria are met and the transfer of risk of loss generally occurs when product is received by the customer, and, accordingly, we recognize revenue at that time.  Provisions are made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on our historical experience.

As is customary in the consumer products industry, we participate in the promotional programs of our customers to enhance the sale of our products.  The cost of these promotional programs varies based on the actual number of units sold during a finite period of time.  These promotional programs consist of direct-to-consumer incentives, such as coupons and temporary price reductions, as well as incentives to our customers, such as allowances for new distribution, including slotting fees, and cooperative advertising.  Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel.  We recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue, at the later of (a) the date the related revenue is recognized, or (b) the date when a particular sales incentive is offered. At the completion of the promotional program, these estimated amounts are adjusted to actual amounts.  

We also periodically run coupon programs in newspaper inserts, on our product websites, or as on-package coupons.  We utilize a national clearing house to process coupons redeemed by customers.  At the time a coupon is distributed, a provision is made based upon historical redemption rates for that particular product, information provided as a result of the clearing house’s experience with coupons of similar dollar value, the length of time the coupon is valid, and the seasonality of the coupon drop, among other factors.  The amount recorded against revenues and accrued for these events during 2018, 2017 and 2016 was $8.0 million, $7.3 million and $5.6 million, respectively. Cash settlement of coupon redemptions during 2018, 2017 and 2016 was $6.2 million, $4.6 million and $3.5 million, respectively.

Allowances for Product Returns
Due to the nature of the consumer products industry, we are required to estimate future product returns.  Accordingly, we record an estimate of product returns concurrent with recording sales.  Such estimates are made after analyzing (i) historical return rates, (ii) current economic trends, (iii) changes in customer demand, (iv) product acceptance, (v) seasonality of our product offerings, and (vi) the impact of changes in product formulation, packaging and advertising.

Lower of Cost or Net Realizable Value for Obsolete and Damaged Inventory
We value our inventory at the lower of cost or net realizable value.  Accordingly, we reduce our inventories for the diminution of value resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated net realizable value.  Factors utilized in the determination of estimated net realizable value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.

Many of our products are subject to expiration dating.  As a general rule, our customers will not accept goods with expiration dating of less than 12 months from the date of delivery.  To monitor this risk, management utilizes a detailed compilation of inventory with expiration dating between zero and 15 months and reserves for 100% of the cost of any item with expiration dating of 12 months or less.  Inventory obsolescence costs charged to operations for 2018, 2017, and 2016 were $1.0 million, $4.6 million and $2.6 million, respectively, or 0.1%, 0.5% and 0.3%, respectively, of net sales.  

Pension Expense
Certain employees of C.B. Fleet Company, Inc. ("Fleet") are covered by defined benefit pension plans. The Company’s policy is to contribute at least the minimum amount required under The Employee Retirement Income Security Act of 1974 ("ERISA"). The Company may elect to make additional contributions. Benefits are based on years of service and levels of compensation. On December 16, 2014, the decision was made to freeze the benefits under the Company's U.S. qualified defined benefit pension plan with an effective date of March 1, 2015.

The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. We review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans that exceed the amounts required by statute. During fiscal 2018, we made total pension contributions to our

34



pension plans of $0.4 million. Changes in interest rates and the market value of the securities held by the plans could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and required contributions.
Our discount rate assumption for our defined benefit plans changed to 3.93% to 4.07% at March 31, 2018 from 3.92% to 4.21% at March 31, 2017. While we do not currently anticipate a change in our fiscal 2019 assumptions, as a sensitivity measure, a 0.25% decline or increase in our qualified discount rate would increase or decrease our qualified pension expense by less than $0.1 million. Similarly, a 0.25% decrease or increase in the expected return on our pension plan assets would increase or decrease our qualified pension expense by approximately $0.1 million. We expect to make a contribution of $1.0 million to our qualified defined benefit pension plan during fiscal 2019.

Valuation of Intangible Assets and Goodwill
Goodwill and intangible assets amounted to $3,401.0 million and $3,518.9 million at March 31, 2018 and 2017, respectively.  At March 31, 2018 and 2017, goodwill and intangible assets were apportioned among similar product groups within our three operating segments as follows:
 
March 31, 2018
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
 
 
 
 
 
 
 
 
Goodwill
$
580,934

 
$
32,919

 
$
6,245

 
$
620,098

 
 
 
 
 
 
 
 
Intangible assets, net
 
 
 
 
 
 
 
Indefinite-lived:
 
 
 
 
 
 
 
Analgesics
308,204

 

 

 
308,204

Cough & Cold
138,946

 
19,291

 

 
158,237

Women's Health
987,300

 
1,691

 

 
988,991

Gastrointestinal
378,739

 
61,025

 

 
439,764

Eye & Ear Care
172,319

 

 

 
172,319

Dermatologicals
148,990

 
1,999

 

 
150,989

Oral Care
241,238

 

 

 
241,238

Other OTC

 

 

 

Household Cleaning

 

 
30,561

 
30,561

Total indefinite-lived intangible assets, net
2,375,736

 
84,006

 
30,561

 
2,490,303

 
 
 
 
 
 
 
 
Finite-lived:
 
 
 
 
 
 
 
Analgesics
36,849

 
1,850

 

 
38,699

Cough & Cold
23,402

 
567

 

 
23,969

Women's Health
46,403

 
1,669

 

 
48,072

Gastrointestinal
42,506

 
1,013

 

 
43,519

Eye & Ear Care
25,102

 

 

 
25,102

Dermatologicals
44,000

 

 

 
44,000

Oral Care
34,248

 
969

 

 
35,217

Other OTC
12,846

 

 

 
12,846

Household Cleaning

 

 
19,189

 
19,189

Total finite-lived intangible assets, net
265,356

 
6,068

 
19,189

 
290,613

Total intangible assets, net
2,641,092

 
90,074

 
49,750

 
2,780,916

Total goodwill and intangible assets, net
$
3,222,026

 
$
122,993

 
$
55,995

 
$
3,401,014



35



 
March 31, 2017
(In thousands)
North American OTC
Healthcare
 
International OTC
Healthcare
 
Household
Cleaning
 
Consolidated
 
 
 
 
 
 
 
 
Goodwill
$
576,453

 
$
32,554

 
$
6,245

 
$
615,252

 
 
 
 
 
 
 
 
Intangible assets, net
 
 
 
 
 
 
 
Indefinite-lived:
 
 
 
 
 
 
 
Analgesics
308,204

 

 

 
308,204

Cough & Cold
138,946

 
19,188

 

 
158,134

Women's Health
987,300

 
1,682

 

 
988,982

Gastrointestinal
407,339

 
60,700

 

 
468,039

Eye & Ear Care
172,319

 

 

 
172,319

Dermatologicals
148,990

 
1,988

 

 
150,978

Oral Care
241,238

 

 

 
241,238

Other OTC

 

 

 

Household Cleaning

 

 
101,261

 
101,261

Total indefinite-lived intangible assets, net
2,404,336

 
83,558

 
101,261

 
2,589,155

 
 
 
 
 
 
 
 
Finite-lived:
 
 
 
 
 
 
 
Analgesics
39,375

 
2,047

 

 
41,422

Cough & Cold
26,320

 
605

 

 
26,925

Women's Health
49,617

 
1,820

 

 
51,437

Gastrointestinal
44,756

 
1,088

 

 
45,844

Eye & Ear Care
26,808

 

 

 
26,808

Dermatologicals
49,258

 

 

 
49,258

Oral Care
37,146

 
908

 

 
38,054

Other OTC
13,776

 

 

 
13,776

Household Cleaning

 

 
20,934

 
20,934

Total finite-lived intangible assets, net
287,056

 
6,468

 
20,934

 
314,458

Total intangible assets, net
2,691,392

 
90,026

 
122,195

 
2,903,613

Total goodwill and intangible assets, net
$
3,267,845

 
$
122,580

 
$
128,440

 
$
3,518,865


Goodwill increased by $4.8 million in 2018 primarily due to a measurement period adjustment recorded during the current year associated with our Fleet acquisition.
 
The decrease in the indefinite-lived intangible assets of $98.9 million for 2018 was primarily due to impairment charges related to our Beano and Comet brands of $28.6 million and $70.7 million, respectively, as discussed under "Impairment Analysis", below.
   
The decrease in the finite-lived intangible assets of $23.8 million for 2018 was primarily due to the amortization expense of $23.3 million and the write-off of the Massengill brand of $0.6 million, as discussed under "Impairment Analysis", below.

At March 31, 2018, our highest valued brands were Monistat, Summer's Eve, BC/Goody's, Fleet and DenTek, comprising 61.1% of the intangible assets value within the OTC Healthcare segments. The Comet, Chore Boy, and Spic and Span brands comprised all of the intangible assets value within the Household Cleaning segment.

Goodwill and intangible assets comprise substantially all of our assets.  Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination.  Intangible assets generally represent our tradenames, brand names and patents.  When we acquire a brand, we are required to make judgments regarding the value assigned to the associated intangible assets, as well as their respective useful lives.  Management considers many factors both prior to and

36



after the acquisition of an intangible asset in determining the value, as well as the useful life, assigned to each intangible asset that we acquire or continue to own and promote.  

The most significant factors are:

Brand History
A brand that has been in existence for a long period of time (e.g., 25, 50 or 100 years) generally warrants a higher valuation and longer life (sometimes indefinite) than a brand that has been in existence for a very short period of time.  A brand that has been in existence for an extended period of time generally has been the subject of considerable investment by its previous owner(s) to support product innovation and advertising and promotion.

Market Position
Consumer products that rank number one or two in their respective market generally have greater name recognition and are known as quality product offerings, which warrant a higher valuation and longer life than products that lag in the marketplace.

Recent and Projected Sales Growth
Recent sales results present a snapshot as to how the brand has performed in the most recent time periods and represent another factor in the determination of brand value.  In addition, projected sales growth provides information about the strength and potential longevity of the brand.  A brand that has both strong current and projected sales generally warrants a higher valuation and a longer life than a brand that has weak or declining sales.  Similarly, consideration is given to the potential investment, in the form of advertising and promotion, required to reinvigorate a brand that has fallen from favor.

History of and Potential for Product Extensions
Consideration is given to the product innovation that has occurred during the brand’s history and the potential for continued product innovation that will determine the brand’s future.  Brands that can be continually enhanced by new product offerings generally warrant a higher valuation and longer life than a brand that has always “followed the leader”.

After consideration of the factors described above, as well as current economic conditions and changing consumer behavior, management prepares a determination of an intangible asset’s value and useful life based on its analysis.  Under accounting guidelines, goodwill is not amortized, but must be tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below the carrying amount.  In a similar manner, indefinite-lived assets are not amortized.  They are also subject to an annual impairment test, or more frequently if events or changes in circumstances indicate that the asset may be impaired.  Additionally, at each reporting period an evaluation must be made to determine whether events and circumstances continue to support an indefinite useful life.  Intangible assets with finite lives are amortized over their respective estimated useful lives and must also be tested for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable and exceeds its fair value.

On an annual basis, during the fourth fiscal quarter, or more frequently if conditions indicate that the carrying value of the asset may not be recovered, management performs a review of both the values and, if applicable, useful lives assigned intangible assets and tests for impairment.

We report goodwill and indefinite-lived intangible assets in three reportable segments: North American OTC Healthcare, International OTC Healthcare and Household Cleaning.  We identify our reporting units in accordance with the FASB ASC Subtopic 280. The carrying value and fair value for intangible assets and goodwill for a reporting unit are calculated based on key assumptions and valuation methodologies previously discussed.  As a result, any material changes to these assumptions could require us to record additional impairment in the future.

In the past, we have experienced declines in revenues and profitability of certain brands in the North American OTC Healthcare and Household Cleaning segments.  Sustained or significant future declines in revenue, profitability, other adverse changes in expected operating results, and/or unfavorable changes in other economic factors used to estimate fair values of certain brands could indicate that fair value no longer exceeds carrying value, in which case a non-cash impairment charge may be recorded in future periods.


37



Goodwill
As of February 28, 2018, our annual impairment review date, and March 31, 2018, we had 15 reporting units with goodwill. As part of our annual test for impairment of goodwill, management estimates the discounted cash flows of each reporting unit to estimate their respective fair values.  In performing this analysis, management considers current information and future events, such as competition, technological advances and reductions in advertising support for our trademarks and tradenames, that could cause subsequent evaluations to utilize different assumptions.  In the event that the carrying amount of the reporting unit exceeds the fair value, management would then be required to allocate the estimated fair value of the assets and liabilities of the reporting unit as if the unit was acquired in a business combination, thereby revaluing the carrying amount of goodwill.  

Indefinite-Lived Intangible Assets
At each reporting period, management analyzes current events and circumstances to determine whether the indefinite life classification for a trademark or tradename continues to be valid.  If circumstances warrant a change to a finite life, the carrying value of the intangible asset would then be amortized prospectively over the estimated remaining useful life.

Management tests the indefinite-lived intangible assets for impairment by comparing the carrying value of the intangible asset to its estimated fair value.  Since quoted market prices are seldom available for trademarks and tradenames such as ours, we utilize present value techniques to estimate fair value.  Accordingly, management’s projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark or tradename and estimate the cash flows over its useful life.  In a manner similar to goodwill, future events, such as competition, technological advances and reductions in advertising support for our trademarks and tradenames, could cause subsequent evaluations to utilize different assumptions.  Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value. In connection with this analysis, management:

Reviews period-to-period sales and profitability by brand;
Analyzes industry trends and projects brand growth rates;
Prepares annual sales forecasts;
Evaluates advertising effectiveness;
Analyzes gross margins;
Reviews contractual benefits or limitations;
Monitors competitors’ advertising spend and product innovation;
Prepares projections to measure brand viability over the estimated useful life of the intangible asset; and
Considers the regulatory environment, as well as industry litigation.

Finite-Lived Intangible Assets
When events or changes in circumstances indicate the carrying value of the assets may not be recoverable, management performs a review similar to indefinite-lived intangible assets to ascertain the impact of events and circumstances on the estimated useful lives and carrying values of our trademarks and tradenames.  

If the analysis warrants a change in the estimated useful life of the intangible asset, management will reduce the estimated useful life and amortize the carrying value prospectively over the shorter remaining useful life.  Management’s projections are utilized to assimilate all of the facts, circumstances and expectations related to the trademark or tradename and estimate the cash flows over its useful life.  Future events, such as competition, technological advances and reductions in advertising support for our trademarks and tradenames, could cause subsequent evaluations to utilize different assumptions.  In the event that the long-term projections indicate that the carrying value is in excess of the undiscounted cash flows expected to result from the use of the intangible assets, management is required to record an impairment charge.  Once that analysis is completed, a discount rate is applied to the cash flows to estimate fair value.  The impairment charge is measured as the excess of the carrying amount of the intangible asset over fair value, as calculated using the excess earnings method.  


38



Impairment Analysis
Goodwill and indefinite-lived intangibles are tested for impairment annually and whenever events and circumstances indicate that impairment may have occurred. During the fourth quarter of each fiscal year, we perform our annual impairment analysis. We utilized the discounted cash flow method to estimate the fair value of our reporting units as part of the goodwill impairment test and the excess earnings method to estimate the fair value of our individual indefinite-lived intangible assets.  The discount rate utilized in the analyses, as well as future cash flows, may be influenced by such factors as changes in interest rates and rates of inflation.  Additionally, should the related fair values of goodwill and intangible assets be adversely affected as a result of declining sales or margins caused by competition, changing consumer preferences, technological advances or reductions in advertising and promotional expenses, we may be required to record impairment charges in the future. In addition, we considered our market capitalization at February 28, 2018, which was the date of our annual review, as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology.

As a result of our analysis at February 28, 2018, all reporting units tested had a fair value that exceeded their carrying value by at least 19%. We performed a sensitivity analysis on our weighted average cost of capital and we determined that a 50 basis point increase in the weighted average cost of capital would not have resulted in any of our reporting unit's implied fair value being less than their carrying value. Additionally, a 50 basis point decrease in the terminal growth rate used for each reporting unit would also not have resulted in any of our reporting units' implied fair value being less than their carrying value.

As a result of our analysis at February 28, 2018, two of our indefinite-lived intangible assets, Beano and Comet, did not exceed the carrying values and as such, impairment charges of $28.6 million and $70.7 million, respectively, were recorded in 2018 relating to these two tradenames. In addition, we recorded an impairment charge on our Massengill finite-lived intangible tradename of $0.6 million bringing its carrying value to zero. The impairment charges were the result of our reassessment of the long-term sales projections for these brands during our annual planning cycle. In addition, we performed a sensitivity analysis of our weighted average cost of capital, and we determined that a 50 basis point increase in the weighted average cost of capital would have resulted in an additional impairment of Beano and Comet totaling $4.2 million. Additionally, a 50 basis point decrease in the terminal growth rate used for each of the Beano and Comet tradenames would have resulted in an additional impairment of $2.3 million.

Beano and Massengill are part of our North American OTC Healthcare segment and Comet is part of our Household Cleaning segment.

Stock-Based Compensation
The Compensation and Equity topic of the FASB ASC 718 requires us to measure the cost of services to be rendered based on the grant-date fair value of the equity award.  Compensation expense is to be recognized over the period during which an employee is required to provide service in exchange for the award, generally referred to as the requisite service period.  Information utilized in the determination of fair value includes the following:

Type of instrument (i.e., restricted shares, stock options, warrants or performance shares);
Strike price of the instrument;
Market price of our common stock on the date of grant;
Discount rates;
Duration of the instrument; and
Volatility of our common stock in the public market.

Additionally, management must estimate the expected attrition rate of the recipients to enable it to estimate the amount of non-cash compensation expense to be recorded in our financial statements.  While management prepares various analyses to estimate the respective variables, a change in assumptions or market conditions, as well as changes in the anticipated attrition rates, could have a significant impact on the future amounts recorded as non-cash compensation expense.  

Recently Adopted Accounting Pronouncements
In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740). The amendments in this update reflect the income tax accounting implications of the Tax Act. See "Tax Reform" above for a discussion of the Tax Act that was signed into law on December 22, 2017, and the impact it has had and may have on our business and financial results.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. See "Tax Reform" above for a discussion of the Tax Act that was signed into law on December 22, 2017, and the impact it has had and may have on our business and financial results. The amendments in this update are effective for all entities for

39



fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We have early adopted ASU 2018-02 and the adoption did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this update involve several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards and classification on the statement of cash flows. For public business entities, the amendments in this update were effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We adopted ASU 2016-09 effective April 1, 2017, and the adoption did not have a material impact on our consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards, under which an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public business entities, the amendments were effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Our adoption of ASU 2015-11, effective April 1, 2017, did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements
In March 2017, the FASB issued  ASU 2017-07,  Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost should be included in the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost should be presented separately outside of operating income. Additionally, only service costs may be capitalized in assets.  Entities should apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component should be applied prospectively. The standard is effective for annual reporting periods beginning after December 15, 2017. The adoption of this standard will require us to move certain pension costs out of operating income. 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). The amendments in this update simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments in this update are effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are evaluating the impact of adopting this guidance on our consolidated financial statements and whether to early adopt this ASU.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. We will adopt this standard as of the beginning of our fiscal 2019, and we do not expect a material impact to our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The amendments in this update provide clarification and guidance on eight cash flow classification issues. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We will adopt this standard as of the beginning of our fiscal 2019, and we do not expect a material impact to our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. The amendments in this update include a new FASB ASC Topic 842, which supersedes Topic 840. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all entities as of the beginning of interim or annual reporting periods. We are evaluating the impact of adopting this guidance on our consolidated financial statements.
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers - Topic 606, including new FASB ASC 606, which supersedes the revenue recognition requirements in FASB ASC 605. Along with amendments issued in 2015 and 2016, the new guidance will eliminate industry-specific revenue recognition guidance under current GAAP and replace it with a principle-based approach for determining revenue. The core principle of the new guidance is that an entity should recognize

40



revenue for the transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services. The new standard will also require additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The new guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively by recognizing the cumulative effect of initially applying the guidance to all contracts existing at the date of initial application (the modified retrospective method). The ASU, as amended, is effective for annual reporting periods beginning after December 15, 2017.

Our implementation approach included performing a detailed study of the various types of agreements that we have with our customers and assessed conformance of our current accounting practices with the new standard. We will adopt the guidance effective on April 1, 2018 using the modified retrospective method. We are finalizing the accounting policies under the new guidance and determined it may impact the timing of revenue recognition for product sales and the timing of revenue reductions associated with certain customer promotional programs we participate in.
Results of Operations

2018 compared to 2017

Total Segment Revenues
The following table represents total revenue by segment, including product groups, for each of the fiscal years ended March 31, 2018 and 2017.
 
 
 
 
 
Increase (Decrease)
(In thousands)
2018
%
2017
%
Amount
%
North American OTC Healthcare
 
 
 
 
 
Analgesics
$
118,610

11.5
$
120,253

13.6
$
(1,643
)
(1.4
)
Cough & Cold
93,537

9.0
90,795

10.3
2,742

3.0

Women's Health
247,244

23.7
147,071

16.7
100,173

68.1

Gastrointestinal
117,627

11.3
76,500

8.7
41,127

53.8

Eye & Ear Care
92,308

8.9
97,618

11.0
(5,310
)
(5.4
)
Dermatologicals
94,775

9.1
85,194

9.6
9,581

11.2

Oral Care
99,072

9.5
97,586

11.1
1,486

1.5

Other OTC
5,701

0.5
5,807

0.7
(106
)
(1.8
)
Total North American OTC Healthcare
868,874

83.5
720,824

81.7
148,050

20.5

 
 
 
 
 
 
 
International OTC Healthcare
 
 
 
 
 
Analgesics
807

0.1
1,922

0.2
(1,115
)
(58.0
)
Cough & Cold
18,310

1.8
17,990

2.0
320

1.8

Women's Health
12,140

1.2
3,811

0.4
8,329

218.6

Gastrointestinal
34,609

3.3
24,812

2.8
9,797

39.5

Eye & Ear Care
11,744

1.1
12,075

1.4
(331
)
(2.7
)
Dermatologicals
2,113

0.2
2,159

0.3
(46
)
(2.1
)
Oral Care
11,930

1.1
10,513

1.2
1,417

13.5

Other OTC
5

0.0
22

0.0
(17
)
(77.3
)
Total International OTC Healthcare
91,658

8.8
73,304

8.3
18,354

25.0

Total OTC Healthcare
960,532

92.3
794,128

90.0
166,404

21.0

Household Cleaning
80,647

7.7
87,932

10.0
(7,285
)
(8.3
)
Total Consolidated
$
1,041,179

100.0
$
882,060

100.0
$
159,119

18.0


Total segment revenues for 2018 were $1,041.2 million, an increase of $159.1 million, or 18.0%, versus 2017. The $159.1 million increase was primarily related to an increase in the North American OTC Healthcare segment, which accounted for $148.1 million, and the International OTC Healthcare segment, which accounted for $18.4 million, largely due to the acquisition of Fleet. The increase attributable to Fleet revenues was partially offset by a decrease of $23.0 million resulting from the divestiture of certain non-core brands. Excluding the impact of the acquisition and divestitures, total segment revenues increased by $6.7 million.

North American OTC Healthcare Segment

41



Revenues for the North American OTC Healthcare segment increased $148.1 million, or 20.5%, during 2018 versus 2017. The $148.1 million increase was primarily attributable to the acquisition of Fleet. Excluding the revenue increase contributed by Fleet, and the reduction of $21.9 million in revenues resulting from the divestiture of certain non-core brands, revenues increased by $6.3 million.

International OTC Healthcare Segment
Revenues for the International OTC Healthcare segment increased $18.4 million, or 25.0%, during 2018 versus 2017. The $18.4 million increase was primarily attributable to the acquisition of Fleet. Excluding the revenue increase contributed by Fleet, and the reduction of $0.3 million in revenues resulting from the divestiture of certain non-core brands, revenues increased by $7.0 million.

Household Cleaning Segment
Revenues for the Household Cleaning segment decreased by $7.3 million, or 8.3%, during 2018 versus 2017. This decrease was primarily attributable to decreased sales related to the Comet brand.

Gross Profit
The following table represents our gross profit and gross profit as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2018 and 2017.

(In thousands)
 
 
 
 
Increase (Decrease)
Gross Profit
2018
%
2017
%
Amount
%
North American OTC Healthcare
$
511,576

58.9
$
438,074

60.8
$
73,502

16.8

International OTC Healthcare
51,414

56.1
42,515

58.0
8,899

20.9

Household Cleaning
13,515

16.8
19,697

22.4
(6,182
)
(31.4
)
 
$
576,505

55.4
$
500,286

56.7
$
76,219

15.2


Gross profit for 2018 increased $76.2 million, or 15.2%, versus 2017.  As a percentage of total revenues, gross profit decreased to 55.4% in 2018 from 56.7% in 2017. The decrease in gross profit as a percentage of revenues was primarily the result of higher distribution costs and the acquisition of Fleet, which has lower gross margins.

North American OTC Healthcare Segment
Gross profit for the North American OTC Healthcare segment increased $73.5 million, or 16.8%, during 2018 versus 2017.  The increase to gross profit was primarily attributable to increased revenue from the acquisition of Fleet. As a percentage of North American OTC Healthcare revenues, gross profit decreased to 58.9% during 2018 from 60.8% during 2017, primarily due to higher distribution costs and the acquisition of Fleet, which has lower gross margins.

International OTC Healthcare Segment
Gross profit for the International OTC Healthcare segment increased $8.9 million, or 20.9%, during 2018 versus 2017. The increase to gross profit was primarily attributable to increased revenue from the acquisition of Fleet. As a percentage of International OTC Healthcare revenues, gross profit decreased to 56.1% during 2018 from 58.0% during 2017, primarily due to the acquisition of Fleet, which has lower gross margins.

Household Cleaning Segment
Gross profit for the Household Cleaning segment decreased $6.2 million, or 31.4%, during 2018 versus 2017.  As a percentage of Household Cleaning revenues, gross profit decreased to 16.8% during 2018 from 22.4% during 2017. The decrease in gross profit as a percentage of revenues was primarily attributable to the reduced royalties as a result of the sale of royalty rights related to the Comet brand in certain geographic regions and higher distribution costs.


42



Contribution Margin
Contribution margin is our segment measure of profitability. It is defined as gross profit less advertising and promotional expenses.

The following table represents our contribution margin and contribution margin as a percentage of total segment revenues, by segment for each of the fiscal years ended March 31, 2018 and 2017.

(In thousands)
 
 
 
 
Increase (Decrease)
Contribution Margin
2018
%
2017
%
Amount
%
North American OTC Healthcare
$
382,518

44.0
$
325,609

45.2
$
56,909

17.5

International OTC Healthcare
35,147

38.3
29,081

39.7
6,066

20.9

Household Cleaning
11,554

14.3
17,237

19.6
(5,683
)
(33.0
)
 
$
429,219

41.2
$
371,927

42.2
$
57,292

15.4


North American OTC Healthcare Segment
Contribution margin for the North American OTC Healthcare segment increased $56.9 million, or 17.5%, during 2018 versus 2017. The contribution margin increase was primarily the result of higher sales volume and gross profit, partially offset by higher advertising and promotion expenses, all attributable to the Fleet acquisition. As a percentage of North American OTC Healthcare revenues, contribution margin for the North American OTC Healthcare segment decreased to 44.0% during 2018 from 45.2% during 2017. The contribution margin decrease as a percentage of revenues was primarily due to the gross profit decrease as a percentage of revenues in the North American OTC Healthcare segment discussed above.

International OTC Healthcare Segment
Contribution margin for the International OTC Healthcare segment increased $6.1 million, or 20.9%, during 2018 versus 2017. The contribution margin increase was primarily the result of higher sales volume and gross profit, partially offset by higher advertising and promotion expenses, all attributable to the Fleet acquisition. As a percentage of International OTC Healthcare revenues, contribution margin for the International OTC Healthcare segment decreased to 38.3% during 2018 from 39.7% during 2017. The contribution margin decrease as a percentage of revenues was primarily due to the gross profit decrease as a percentage of revenues in the International OTC Healthcare segment discussed above.

Household Cleaning Segment
Contribution margin for the Household Cleaning segment decreased $5.7 million, or 33.0%, during 2018 versus 2017.  As a percentage of Household Cleaning revenues, contribution margin for the Household Cleaning segment decreased to 14.3% during 2018 from 19.6% during 2017. The contribution margin decrease as a percentage of revenues was primarily attributable to the gross profit decrease as a percentage of revenues in the Household Cleaning segment discussed above.

General and Administrative
General and administrative expenses were $85.0 million for 2018 versus $89.1 million for 2017. The decrease in general and administrative expenses was primarily due to higher acquisition and integration charges in 2017 related to our acquisition of Fleet, partially offset by an increase in 2018 in compensation costs associated with the acquisition of Fleet.

Depreciation and Amortization
Depreciation and amortization expense was $28.4 million for 2018 versus $25.4 million for 2017. The increase was primarily due to higher amortization expense during 2018 as a result of the Fleet acquisition.

(Gain) Loss on Divestitures
We recorded a pre-tax net loss on divestitures of $51.8 million during the year ended March 31, 2017, which relates to several separate transactions. In July 2016, the Company completed the sale of Pediacare®, New Skin® and Fiber Choice®, which were non-core OTC brands and were reported under the North American OTC Healthcare segment in the Cough & Cold, Dermatologicals and Gastrointestinal product groups, respectively, and recorded a pre-tax loss of $56.2 million. Also included in the pre-tax net loss is a pre-tax gain of $1.2 million on the sale of a royalty license for our Comet brand in certain geographic areas as further discussed in "Divestitures and Sale of License Rights" above. Furthermore, also included in the pre-tax net loss above is a pre-tax net gain on divestitures of $3.2 million, which relates primarily to sales of e.p.t® and Dermoplast®. Both e.p.t® and Dermoplast® were non-core OTC brands reported under the North American OTC Healthcare segment. e.p.t® was included in the Women's Health product group, while Dermoplast® was included in the Dermatologicals product group.

Tradename Impairment

43



As a result of our impairment analysis at February 28, 2018, two of our indefinite-lived intangible assets, Beano and Comet, did not exceed the carrying values and as such, impairment charges of $28.6 million and $70.7 million, respectively, were recorded in 2018 relating to these two tradenames. In addition, we recorded an impairment charge on our Massengill finite-lived intangible tradename of $0.6 million bringing its carrying value to zero. The impairment charges were the result of our reassessment of the long-term sales projections for these brands during our annual planning cycle. Beano and Massengill are part of our North American OTC Healthcare segment and Comet is part of our Household Cleaning segment.
 
Interest Expense, net of Interest Income
Net interest expense was $105.9 million during 2018 versus $93.3 million during 2017.  The increase in net interest expense was primarily attributable to higher borrowings due to the Fleet acquisition, partially offset by lower interest rates. The average indebtedness outstanding increased from $1.7 billion during 2017 to $2.1 billion during 2018. The average cost of borrowing decreased to 5.0% for 2018 from 5.6% for 2017.

Loss on Extinguishment of Debt
During 2018, we recorded a $2.9 million loss on extinguishment of debt, which consisted of deferred financing fees we wrote off primarily related to the prepayment of our 2012 Term Loan.  During 2017, we recorded a $1.4 million loss on extinguishment of debt, which consisted of deferred financing fees we wrote off primarily related to the 2017 refinancings.

Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Act, which represents significant U.S. federal tax reform legislation that includes a permanent reduction to the U.S. federal corporate income tax rate. The permanent reduction to the federal corporate income tax rate resulted in a one-time gain of $267.0 million related to the value of our deferred tax liabilities and a gain of $3.2 million related to the lower blended tax rate on our current year earnings, resulting in a net gain of $270.2 million. Additionally, the tax reform legislation subjects certain of our cumulative foreign earnings and profits to U.S. income taxes through a deemed repatriation, which resulted in a charge of $1.9 million during 2018.

The provision/benefit for income taxes during 2018 was a benefit of $232.5 million versus a provision of $41.5 million in 2017.  The effective tax rate on income before income taxes was (217.1)% during 2018 versus 37.4% during 2017. The change in the provision/benefit for 2018 versus 2017 was primarily due to the Tax Act discussed above.